We analyze a two-country model of Foreign Direct Investment (FDI). Two firms, each of which is originally situated in only one of the two countries, first decide whether to build a plant in the foreign country. Then, they decide whether to relocate R&D activities. Finally, they engage in product-market competition. Our main points are: first, FDI liberalization causes a relocation of R&D activi...

We examine the effects of mergers and internal groups (lobbies) in shaping national policies towards foreign direct investment. Lobbying is modeled following the political contributions approach. In this work we develop a partial equilibrium model of an oligopolistic industry in which a number of domestic and foreign firms compete in the market for a homogeneous good in a host country. It is as...

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By reviewing the existing literature and empirical investigation, we build a socalled Photosynthesis model which argues that a recipient developing country only achieves benefits from FDI once they have sufficient absorptive capacity related to human capital resource, absorptive capacity of domestic firm, financial systems, physical infrastructure, technological, and institutional development. ...

This paper investigates the productivity effects of inward and outward foreign direct investment using industry and country level data for 17 OECD countries over the period 1973 to 2001. Controlling for national and international knowledge spillovers we argue that effects of FDI work through direct compositional effects as well as changing competition in the host country. Our results show that ...

We examine the impact of capital account policies on FDI inflows. Using an annual panel dataset of 83 developing and developed countries for 1984-2000, we find that capital account openness is positively but only very moderately associated with the amount of FDI inflows after controlling for other macroeconomic and institutional measures. To a large extent, other country characteristics seem to...

Multinational firms circumvent capital controls by distorting their reported trade patterns, profitability, and dividend repatriations. The changed patterns of reported profits in response to capital controls are comparable to the effects of a 24% difference in corporate tax rates. The costliness of these acts of evasion combined with the significantly higher interest rates faced by multination...

This paper suggests that the use of investment incentives focusing exclusively on foreign firms, although motivated in some cases from a theoretical point of view, is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI – spillovers of foreign technology and skills to local industry – is not an a...

This paper assesses the effect of openness on corruption, using foreign direct investment (FDI) inflows as a measure of openness, after trade intensity is accounted for. We use a broad cross section of countries over the period 1970 to 1994 and address the issue of causality with a new set of instrumental variables relying on geographical and cultural distance between the FDI exporting and reci...