Spillover effects of foreign direct investment: Theoretical and empirical analysis.

摘要

This dissertation studies the possible R&D spillover effects of Foreign Direct Investment (FDI) on domestic firms. In particular, it studies how competition with foreign firms (or, multinational enterprises (MNEs)) can induce domestic firms to spend more on cost-reducing R&D, under two different scenarios. We examine this issue both theoretically and empirically. In the theoretical analysis, a cournot oligoplistic market structure is considered. A non-cooperative two stage game-theoretic approach is employed. In the first stage, each of the MNEs and the domestic firms decide on optimal R&D considering other firms' R&D as given, and, in the second period, each firm decides on optimal output level considering other firms' output levels as given. The model works with backward induction.;In chapter 1, we review the existing literature on spillover effects of Foreign Direct Investment. We provide review of both theoretical and empirical studies.;In chapter 2, a single domestic firm is considered. The number of the MNEs is also fixed exogenously. Hence, a domestic firm and a few Multinational Enterprises operate in the host country under two different scenarios: (i) when both domestic firm and the foreign firms can borrow from perfectively competitive credit market, and (ii) when the domestic firm faces a monopoly credit market whereas the foreign firms can still borrow from the competitive credit market. In the first scenario, under the condition of high level of initial R&D of either the domestic firm or the foreign firms, it turns out that domestic firm's R&D may increase with more competition from the MNEs. In the second scenario (under monopoly credit market), spillover occurs if the slope of the demand for R&D by the domestic firm changes sufficiently negatively with number of foreign firms.;In chapter 3, free entry and exit of the domestic firms are considered whereas the number of foreign firms is still considered exogenous. Both foreign and domestic firms can borrow at a competitive rate. It turns out that spillover occurs when the market share of the foreign firms is sufficiently large and there are more foreign firms than the domestic firms in the market. Under these conditions, acute competition from the foreign firms forces some of domestic firms out of the market. However, the remaining firms, to survive in the face of acute competition, invest more in cost reducing R&D.;Chapter 4 investigates the issue empirically, using cross country data for 72 countries for eight years. The overall findings are, the FDI generally increases R&D in a country and real rate of interest has negative association with the R&D This is true for both whole sample as well as for NONOECD sub sample, even though for the subsample it is less obvious. It is also worth mentioned that 'autonomous' R&D is higher in OECD countries than other regions.