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Incentives for foreign direct investment under imitation

In: Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy

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  • PING LIN
  • KAMAL SAGGI

Abstract

We study the symmetric mixed strategy equilibrium of a dynamic model where at each instant two exporting firms choose their probability of foreign direct investment (FDI). The first firm’s FDI generates cost-lowering spillovers for the second and leads to local imitation, thereby intensifying competition. While an increase in imitation risk usually makes FDI less likely, there exist parameter values for which the converse holds. The key point is that by delaying the second firm’s switch to FDI, an increase in imitation risk can increase the value of being first to invest, thereby increasing the equilibrium probability of FDI.

Suggested Citation

  • Ping Lin & Kamal Saggi, 2023. "Incentives for foreign direct investment under imitation," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 6, pages 145-168, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233027_0006
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    More about this item

    Keywords

    International Technology Transfer; Multinational Firms; Trips; Foreign Direct Investment; Oligopolistic Competition; Vertical Contracts; Intellectual Property Rights;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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