FOREIGN-INVESTMENT AND TECHNOLOGY-TRANSFER - A SIMPLE-MODEL

This paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon, resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms. The model explicitly recognizes two types of costs - the costs to the multinational of transferring technology to its subsidiaries and the learning costs of domestic firms. The analysis points to the importance of the learning efforts of host-country firms in increasing the rate at which MNCs transfer technology. The paper also explores some of the reasons why learning investment in host country firms may be suboptimal.