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FDI entry models, development and technological spillovers

Alvarez , Isabel and Marín, Raquel and Santos Arteaga, Francisco J. (2011) FDI entry models, development and technological spillovers. [Working Paper or Technical Report]

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Abstract

Most of the literature related to foreign direct investment in developing countries focuses on the incentives
of local producers to incur in the technological development costs required to act as suppliers of
multinational companies (MNC). Scarce attention has been paid to the strategic interactions derived from
the potential (reciprocal) technological spillovers between local firms and MNC subsidiaries, with the recent
exception of the theoretical model by Sanna-Randaccio and Veugelers (2007). Such a void in the literature is
justified on the technological differences between MNC and local firms, assuming that both of them produce
for totally independent markets under no direct competition conditions. If this were the case, MNC entry
modes in underdeveloped countries should be independent of their level of development. We reject such a
simplification illustrating empirically how entry modes depend on the development level of a given host
country. Besides, this finding is justified with a theoretical proposal that generalizes the Sanna-Randaccio
and Veugelers (2007) model. Our extension accounts for all the possible equilibrium scenarios jointly
defined by the strategies of both the MNC and the local firms, which allows us to consider the equilibria
ignored in a partial analysis and to provide a general equilibrium explanation for the evidence presented.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Multinational Companies, Technological Spillovers, Developing Countries, Entry modes.
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Economic development
Series Name:Working Paper
Volume:UNSPECIFIED
Number:04/11
ID Code:12613
Deposited On:05 May 2011 08:39
Last Modified:06 Feb 2014 09:28

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