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FDI spillovers, new industry development, and economic growth

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  • Thanh Tam Nguyen‐Huu
  • Ngoc‐Sang Pham

Abstract

The paper investigates the optimal strategy of a small open economy receiving foreign direct investment (FDI) in an optimal growth context. We prove that no domestic firm can enter the new industry when the multinational enterprise's productivity or the fixed entry cost is high. Nevertheless, the host country's investment stock converges to a higher steady state than an economy without FDI. A domestic firm enters the new industry if its productivity is high enough. Moreover, the domestic firm can dominate or even eliminate its foreign counterpart.

Suggested Citation

  • Thanh Tam Nguyen‐Huu & Ngoc‐Sang Pham, 2024. "FDI spillovers, new industry development, and economic growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(1), February.
    • Handle: RePEc:bla:jpbect:v:26:y:2024:i:1:n:e12670
    DOI: 10.1111/jpet.12670
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