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Foreign Direct Investment and the Nature of R&D

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  • Amy Jocelyn Glass
  • Kamal Saggi

Abstract

The authors find that the role foreign direct investment (FDI) plays in international technology transfer (ITT) hinges on whether substitute channels of ITT--such as imitation--exist for the host country. If FDI is the sole channel of ITT, a faster flow of FDI to the South increases the rates of innovation, imitation, and ITT, so FDI generates dynamic benefits. If FDI and imitation coexist as channels of ITT, however, then FDI merely substitutes for imitation targeting Northern firms. A faster flow of FDI to the South then leaves the rates of innovation, imitation, and ITT essentially unaffected, so FDI generates mostly static benefits.

Suggested Citation

  • Amy Jocelyn Glass & Kamal Saggi, 1999. "Foreign Direct Investment and the Nature of R&D," Canadian Journal of Economics, Canadian Economics Association, vol. 32(1), pages 92-117, February.
    • Handle: RePEc:cje:issued:v:32:y:1999:i:1:p:92-117
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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