GEP Research Paper 08/06
Technology Gap, Foreign Direct Investment, and Market Structure
Spiros Bougheas, David Greenaway, Kittipong Jangkamolkulchai and Richard Kneller
Summary
The paper develops and analyzes an entry model that predicts that the likelihood that foreign firms enter a country increases with the productivity gap between foreign and domestic firms. The model is tested using firm level data on acquisitions of British firms by foreign firms.
Abstract
We develop and analyze an entry model that predicts that the likelihood that foreign firms enter a country increases with the productivity gap between foreign and domestic firms. The intuition is that foreign firms locate where their competitive advantage is highest and thus enter countries where their productivity is higher relative to domestic firms. We test this model using firm level data on acquisitions of British firms by foreign firms and find results that are consistent with our model’s predictions.
Issued in January 2008
This paper is available in PDF format