Mode of Foreign Entry, Technology Transfer, and Foreign Direct Investment Policy

42 Pages Posted: 20 Apr 2016

See all articles by Aaditya Mattoo

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Date Written: December 2001

Abstract

When technology transfer is costly, a foreign firm and host country government may differ in their preferences over direct entry and acquisition. Government intervention could help induce the socially preferred choice.

Foreign direct investment can take place through the direct entry of foreign firms or the acquisition of existing domestic firms. Mattoo, Olarreaga, and Saggi examine the preferences of a foreign firm and the host country government with respect to these two modes of foreign direct investment in the presence of costly technology transfer. The tradeoff between technology transfer and market competition emerges as a key determinant of preferences.

The authors identify the circumstances in which the choices of the government and the foreign firm diverge - and in which domestic welfare can be improved by restrictions on foreign direct investment that induce the foreign firm to choose the socially preferred mode of entry.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the determinants of trade in services in developing countries. The authors may be contacted at amattoo@worldbank.org, molarreaga@worldbank.org, or ksaggi@mailsmu.edu.

Suggested Citation

Mattoo, Aaditya and Olarreaga, Marcelo and Saggi, Kamal, Mode of Foreign Entry, Technology Transfer, and Foreign Direct Investment Policy (December 2001). World Bank Policy Research Working Paper No. 2737. Available at SSRN: https://ssrn.com/abstract=634449

Aaditya Mattoo (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://econ.worldbank.org/staff/amattoo

Marcelo Olarreaga

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

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