Incentives for foreign direct investment under imitation

Ping LIN; Kamal SAGGI

doi:10.1142/9789813233027_0006

Incentives for foreign direct investment under imitation

Ping LIN
, Kamal SAGGI

Lingnan University

Research output: Book Chapters | Papers in Conference Proceedings › Book Chapter › Research › peer-review

Abstract

We study the symmetric mixed strategy equilibrium of a dynamic model where at each instant two exporting firms choose their probability of foreign direct investment (FDI). The first firm's FDI generates cost-lowering spillovers for the second and leads to local imitation, thereby intensifying competition. While an increase in imitation risk usually makes FDI less likely, there exist parameter values for which the converse holds. The key point is that by delaying the second firm's switch to FDI, an increase in imitation risk can increase the value of being first to invest, thereby increasing the equilibrium probability of FDI.

Original language	English
Title of host publication	Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy
Editors	Kamal SAGGI
Publisher	World Scientific
Chapter	6
Pages	145-168
Number of pages	24
ISBN (Electronic)	9789813233027
DOIs	https://doi.org/10.1142/9789813233027_0006
Publication status	Published - Sept 2023

Publication series

Name	World Scientific Studies in International Economics
Volume	82
ISSN (Print)	1793-3641

Bibliographical note

This chapter was originally appeared in Canadian Journal of Economics 32, 1275–1298.
Publisher Copyright:
© 1999 Canadian Economics Association.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

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10.1142/9789813233027_0006

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Incentives for foreign direct investment under imitation. / LIN, Ping; SAGGI, Kamal.
Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy. ed. / Kamal SAGGI. World Scientific, 2023. p. 145-168 (World Scientific Studies in International Economics; Vol. 82).

Research output: Book Chapters | Papers in Conference Proceedings › Book Chapter › Research › peer-review

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AB - We study the symmetric mixed strategy equilibrium of a dynamic model where at each instant two exporting firms choose their probability of foreign direct investment (FDI). The first firm's FDI generates cost-lowering spillovers for the second and leads to local imitation, thereby intensifying competition. While an increase in imitation risk usually makes FDI less likely, there exist parameter values for which the converse holds. The key point is that by delaying the second firm's switch to FDI, an increase in imitation risk can increase the value of being first to invest, thereby increasing the equilibrium probability of FDI.

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Incentives for foreign direct investment under imitation

Abstract

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Bibliographical note

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