GEP Research Paper 06/02
Productivity Distributions in International Oligopolies: Spillovers, Technology Transfer, and Heterogeneous FDI
Ben Ferrett
Abstract
Foreign-owned firms exhibit widely-documented productivity advantages over domestic firms. To interpret this stylized fact, we model the relationships between FDI flows and national productivity distributions across firms in an international oligopoly. Industrial structure is determined endogenously, and both greenfield- and acquisition-FDI are allowed for. The technology gap between firms interacts with localized spillovers to determine greenfield-FDI incentives and with within-firm technology transfer to determine the profitability of acquisition-FDI. Greenfield- and acquisition-FDI also affect the profitability of entry into the industry differently. We contrast our results with the insights of Dunning's well-known OLI framework on the causes of FDI flows.
Issued in February 2006.
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