The economic impacts of technology transfer and spillovers through foreign direct investment in developing countries

Sawada, Naotaka
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This dissertation consists of three essays. The overall theme is about the economic effects of technology transfer and spillovers in developing countries through foreign direct investment (FDI). The first essay is an oligopoly approach. The second essay is an endogenous growth approach. The third essay is a policy implication of intellectual property rights (IPRs) enforcement using the first oligopoly model. The first essay develops an oligopoly model with endogenous technology spillovers through FDI. The foreign entrant brings a superior technology and therefore may spend resources to prevent spillovers of its technology to the home firm. The home firm has an incentive to spend resources to gain these spillovers. After firms strategically choose their expenditures to influence technology spillovers, they compete in a Cournot Nash quantity game. This study provides theoretical insight on the positive and negative empirical spillover results of FDI on productivity of local firms. Up to a critical bound, the larger the initial technology gap between the foreign and home firms, the more the home firm spends to gain spillovers. Past that boundary, the home firm decreases spending. As a result, the home firm's profits from spillovers vary, but larger technology gaps engender greater net profit losses from FDI. My results suggest that the developing countries should promote FDI when small technology gaps exist and support R&D activities of local firms in all cases. The second essay modifies the endogenous growth model with 1eaming-by-doing and knowledge spillovers of Barro and Sala-i-Martin (1999) to analyze the effects of FDI on economic growth in developing countries. The effects of technology transfer and spillovers are separately analyzed. The growth of capital accumulation, consumption, and income depends on the conditions of the population growth, the rate of return on capital, and the net foreign capital inflow. For a developing country to sustain endogenous economic growth, the required conditions are the higher rate of return on investment and positive foreign capital inflow. The best policy package for the developing country is to promote FDI to increase the net foreign capital inflow, and to support R&D activities of local firms to increase their absorptive capacities. The third essay provides theoretical policy analysis of the effects of IPR protection on the spillover equilibrium and home welfare, using the first oligopoly model. It concludes that private enforcement of the foreign firm's spending to prevent technology spillovers is complementary to public enforcement of IPR protection. IPR protection affects the foreign firm's behavior to spend more to prevent spillovers while its enforcement affects the home firm's behavior to spend less to gain spillovers. As a result, the spillover ratio decreases in equilibrium. A decrease in the spillover ratio leads to reduction in consumers' welfare with existing FDI as well as in the profits of the home firm. However, since the likelihood of FDI increases, home welfare improves by a new FDI which was not previously profitable because welfare gains for consumers dominate negative effects in the home firm's profits. Therefore, a developing country can benefit from strengthening its IPR enforcement if this serves to attract additional FDI in the country.
Thesis (Ph. D.)--University of Hawaii at Manoa, 2005.
Includes bibliographical references (leaves 121-124).
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xi, 124 leaves, bound ill. 29 cm
Technology transfer -- Economic aspects -- Developing countries, Investments, Foreign -- Developing countries, Intellectual property -- Economic aspects -- Developing countries
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Theses for the degree of Doctor of Philosophy (University of Hawaii at Manoa). Economics; no. 4600
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