Foreign direct investment and international trade in a continuum Ricardian trade model

We develop a continuum Ricardian trade model to capture both North–South trade and technology transfer via foreign direct investment (FDI) by multinational enterprises (MNEs). We show that there is a unique range of products produced in the South by MNEs. In the case of an infinitely elastic supply of expatriates, if the ability of Southern workers in absorbing Northern technology increases, then (a) the range of MNE production increases, (b) Northern workers's welfare and Southern workers' welfare change in opposite directions, and (c) the world aggregate welfare increases under certain conditions. We explore issues such as North–South wage gaps, FDI policies and the product cycle. We also derive results under a general supply of expatriates.     

NORTH–SOUTH TRADE WITH MULTINATIONAL FIRMS AND INCREASING PRODUCT VARIETY*

We present a model of North–South trade with multinational firms and increasing product variety. Firms engage in innovative R&D to develop new product varieties in the North, and foreign affiliates of multinational firms engage in adaptive R&D to learn how to produce product varieties in the South. We find that a shift to stronger protection of intellectual property rights in the South induces foreign affiliates of multinational firms to increase their R&D expenditures, results in a faster rate of technology transfer within multinational firms, and increases long‐run consumer welfare in both regions.     

Technology diffusion and global welfare effects: Imitative R&D vs. South-bound FDI

A country in question is positioned in the middle of a global technology race. To shorten its technology gap with the forerunner (North), this middle country must invest in imitative R&D. To exploit cheap labor in the technological laggard (South), it also must invest in South-bound FDI. A dynamic general-equilibrium model of three countries (North, Middle, South) is set up to numerically analyze how the Middle’s refraining South-bound FDI affects international technology diffusion, international wage gaps, and international welfare. The Middle always finds a need to socially optimize investing balance between imitative R&D and South-bound FDI, while the South is instead in favor of as much South-bound FDI as possible. Interestingly, the North may, or may not, align with the Middle’s tightening South-bound FDI, depending on how fast the Northern product innovation can proceed over time. Both transitional dynamics and the steady-state equilibrium are computed.     

Optimal Privatization and Economic Growth in a Schumpeterian Economy

This paper analyzes the growth and welfare effects of the privatization of public firms in a Schumpeterian growth model. Two alternative definitions of privatization are proposed in our model. The first is the ratio of mixed R&D firms’ equity shares owned by the household, which is dubbed vertical privatization. The second is the number of unmixed R&D firms, which is called horizontal privatization. We find that, under both definitions, privatization is beneficial to economic growth while the effect of privatization on social welfare is ambiguous. Accordingly, our analysis reveals that a partial privatization could be an optimal policy. Moreover, we also discuss how the extent of patent protection is related to optimal privatization.     

A welfare analysis of unilateral trade and FDI liberalization

This paper uses a heterogeneous‐firms model to examine the pro‐competitive channel through which FDI affects national welfare. The model shows that the country from which FDI originates experiences a welfare gain following liberalization. However, a counterintuitive finding is that the welfare of the host country deteriorates. This is explained by the production relocation process that leads to an increase in the mass of domestic firms in the source country and a decrease in the host country. The model also confirms that unilateral trade liberalization brings a similar result even in the presence of bilateral FDI flows.     

Innovation or imitation? The effect of spillovers and competitive pressure on firms’ R&D strategy choice

In this paper a firm’s R&D strategy is assumed to be endogenous and allowed to depend on both internal firm characteristics and external factors. Firms choose between two strategies, either they engage in R&D or abstain from own R&D and imitate the outcomes of innovators. This yields three types of equilibria, in which either all firms innovate, some firms innovate and others imitate, or no firm innovates. Firms’ equilibrium strategies crucially depend on external factors. We find that the efficiency of intellectual property rights protection positively affects firms’ incentives to engage in R&D, while excessive competitive pressure has a negative effect. In addition, smaller firms are found to be more likely to become imitators when the product is homogeneous and the level of spillovers is high. Regarding social welfare our results indicate that strengthening intellectual property protection can have an ambiguous effect. In markets characterized by a high rate of innovation a reduction of intellectual property rights protection can discourage innovative performance substantially. However, a reduction of patent protection can also increase social welfare because it may induce imitation. This indicates that policy issues such as the optimal length and breadth of patent protection cannot be resolved without taking into account specific market and firm characteristics.     

The welfare effects of FDI: A quantitative analysis

Foreign direct investment (FDI) can increase productivity and wages. However, it is also often accompanied by primary income deficits as foreign-owned firms repatriate their profits. The welfare effects of FDI are thus ambiguous. A particularly illustrative example of this phenomenon are the Visegrád 4 (V4) countries (Czech Republic, Hungary, Poland, Slovakia). This paper investigates whether FDI can be beneficial in the presence of profit repatriation using a general equilibrium model calibrated to the V4 economies. Counterfactual simulations suggest that the benefits of FDI outweigh the costs for these countries. On average, a 1% increase in the share of foreign firms is associated with a 0.17% increase in welfare. However, incentivising foreign firms to reinvest more of their profits domestically is, ceteris paribus, welfare-improving. A 10-percentage-point increase in the profit repatriation rate is associated with a 1.06% welfare gain on average.     

Innovation,imitation and multinationalisation in a North–South model: a theoretical note

We consider a dynamic general equilibrium product variety model of international product cycle with endogenous rate of imitation in the South; and find that a policy of strengthening intellectual property rights (IPR) protection in the South lowers the rate of product innovation, rate of multinationalisation and South–North relative wage if multinationalisation [or, foreign direct investment (FDI)] is the channel of production transfer. These results are significantly different from those obtained in the exogenous imitation model of Lai (J Dev Econ 55(1): 133–153, 1998). So a stronger IPR protection policy adopted by the South may not be interpreted as an incentive to encourage Northern FDI in the South and to raise the rate of innovation in the North.      

Optimum tariffs and patent length in a model of North–South technology transfer

We study a developing country's choice of optimum tariffs and patent length in a theoretical model of trade and technology transfer. A Northern firm chooses whether to export or produce a new good in a Southern country. In the absence of patent protection, a high tariff is required to induce FDI. This reduces Southern welfare when the good is imported. The Southern government can combine a positive patent length with tariffs to reduce this loss and induce FDI. Thus Southern countries may have an incentive to protect patents, although never to the same extent as Northern countries.     

Negotiation over Intellectual Property Rights Protection in a Mixed Market

This article models a North–South negotiation under a mixed oligopolistic setting where a public firm in the South and a private firm from the North compete in the southern market. The southern firm is a public one whose objective is a weighted sum of the South's social welfare and its own profit, whereas the northern firm is a pure profit maximizer. The North provides a quid pro quo in exchange for the strengthening of the enforcement of intellectual property rights (IPR) protection in the South. We show that when the northern and southern firms engage in quantity competition in the southern market, the southern government's optimal choice is either complete protection or complete violation. We show this to depend on the southern government's valuation of the quid pro quo. Moreover, strengthening IPR protection will deepen the privatization process in the South, though it brings about a social welfare loss to the South.     

Intellectual property rights and skills accumulation: A product-cycle model of FDI and outsourcing

This study investigates the effects of stronger intellectual property rights (IPR) protection in the South on innovation, skills accumulation, wage inequality, and patterns of production based on a North–South general-equilibrium model with foreign direct investment (FDI) and international outsourcing. We find that stronger Southern IPR protection raises the extent of outsourcing and reduces the extent of FDI. This increases the proportion of unskilled Southerners and mitigates Southern wage inequality. In the North, stronger Southern IPR protection raises the proportion of skilled Northerners and wage inequality. The effects of international specialization, R&D cost, and Northern population are also examined.     

A North–South model of outsourcing and growth

In this paper, I formulate a simple North–South R&D‐based growth model where final goods firms in the North endogenously determine the range of international outsourcing of intermediate goods to the South. I show that a fall in the trade cost (through trade liberalization) of intermediate goods in the North: (i) reduces the wage of the North relative to that of the South; (ii) increases the outsourced variety of intermediate goods in the North; and (iii) stimulates Northern R&D activity and economic growth in both countries. By conducting welfare analysis, I also show that a decline in the trade cost of intermediate goods in the North improves welfare in the South more than in the North.     

The Impact of Foreign Direct Investment on Home and Host Countries with Endogenous R&D

The paper analyzes the impact of FDI on home and host countries, when firms compete both in the choice of international strategy and in R&D. A two-country, two-firm model is used. The problem is structured as a three-stage game in which firms must decide: the mode of foreign expansion; how much to invest in R&D; how much to sell in each market. It is shown that in high-technology sectors a policy of attracting inward FDI may increase welfare in both the home and host countries. The effect on host-country welfare is found to be more beneficial if technological spillovers are national, instead of international, in scope.     

企业研发与专利保护——基于企业间策略性竞争的分析视角杨

本文使用空间价格歧视模型,分析了企业研发决策与政府专利保护之间的关系。结果不仅证明了企业在专利保护程度较高、研发环境较好时会进行研发,研发数量与政府的专利保护呈倒U型关系,而且发现,企业研发后,在专利保护程度极低和极高时,企业会采用特许权方式对外专利授权,中间状态下企业不对外授权。从社会福利和社会创新的角度来看,专利保护不是越多越好,而是存在一个临界的拐点。该拐点随着社会研发环境和行业交易费用的增加而递增。     

The impact of foreign direct investment on innovation: Evidence from patent filings and citations in China

This paper studies how foreign direct investment (FDI) affects innovation in the host country, using matched firm-level patent data of Chinese firms. The data contain multidimensional information about patent counts and citations, which, together with an identification strategy based on Lu et al. (2017), allows us to measure innovation comprehensively and to uncover the causal relationship. Our empirical analysis shows that FDI has positive intra-industry effects on the quantity and quality of innovation, as well as radical innovation, by Chinese firms. We show that these positive effects are driven by increases in competition, rather than by knowledge spillovers from FDI which is measured by patent citations between domestic firms and foreign invested enterprises (FIEs). We further investigate the inter-industry effects of FDI and find that FDI has positive vertical effects on innovation in upstream sectors through backward knowledge spillovers.     

Intellectual property rights,technology transfer and exports in developing countries

We develop a model to analyze one mechanism under which stronger intellectual property rights (IPR) protection may improve the ability of firms in developing countries to break into export markets. A Northern firm with a superior process technology chooses either exports or technology transfer through licensing as its mode of supplying the Southern market, based on local IPR policy. Given this decision, the North and South firms engage in Cournot competition in both markets. We find that stronger IPR would enhance technology transfer through licensing and reduce the South firm's marginal production cost, thereby increasing its exports. Welfare in the South would rise (fall) if that country has high (low) absorptive capacity. Excessively strong IPR diminish competition and welfare, however. Adding foreign direct investment as an additional channel of technology transfer sustains these basic messages.     

Imitation and innovation driven development under imperfect intellectual property rights

Developing countries employ about two-fifth of the world's researchers, originate one quarter of world expenditures on R&D, and their inventions are subject to imitation. Nevertheless, the previous literature focuses on North–South setups in which the South is restricted to imitating northern inventions. To analyze the effects of IPR policies on developed and developing countries, we extend this literature to allow not only for southern innovation and imitation of northern goods, but also for imitation targeted at southern innovations. We find the effects of IPRs on R&D and welfare to be non-monotonic and dependent on innovation efficiency and an innovation threshold in the South. For sufficiently strong IPRs the South engages in original R&D and stronger IPRs promote southern innovation, welfare, and a reduction in the North–South wage gap. Below the threshold, a strengthening of IPR protection fails to promote innovation and decreases welfare. Stronger IPRs exclusively for southern firms can benefit both regions by shifting southern resources from the imitation of northern goods to original southern innovation.     

Cross‐border Mergers and Greenfield Foreign Direct Investment

This paper presents a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). In a monopolistically competitive environment merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology. Following empirical evidence, greenfield investors are modeled as more productive than M&A firms, which are in turn more productive than exporters. The model has two symmetric countries and generates two‐way flows of both M&A and greenfield FDI. Trade liberalization makes more firms choose greenfield FDI over M&A and leads to lower productivity and welfare.     

International Organization of Production with Heterogeneous Firms

This paper presents a North–South model with differentiated goods being produced in the North. Each differentiated final good requires both management and manufacturing services as inputs, and firms are heterogeneous with regard to their productivity levels in providing these inputs. Two scenarios of relocating manufacturing to the South, which are interpreted to correspond to vertical foreign direct investment (FDI) and offshoring, are investigated. In both cases there is a minimum level of management productivity required for firms to benefit from relocation of manufacturing to the South. In the case of offshoring, productivity and profit gains are relatively larger for firms with low initial manufacturing productivity. Firms with high initial productivity in both aspects choose not to offshore owing to the presence of fixed costs. The model is subsequently used to examine the implications of global economic integration on the type of firm that exits an industry, changes production location or keeps manufacturing domestically.     

Intellectual property rights, technology transfer and exports in developing countries

We develop a model to analyze one mechanism under which stronger intellectual property rights (IPR) protection may improve the ability of firms in developing countries to break into export markets. A Northern firm with a superior process technology chooses either exports or technology transfer through licensing as its mode of supplying the Southern market, based on local IPR policy. Given this decision, the North and South firms engage in Cournot competition in both markets. We find that stronger IPR would enhance technology transfer through licensing and reduce the South firm's marginal production cost, thereby increasing its exports. Welfare in the South would rise (fall) if that country has high (low) absorptive capacity. Excessively strong IPR diminish competition and welfare, however. Adding foreign direct investment as an additional channel of technology transfer sustains these basic messages.