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SOUTHERN INNOVATION AND REVERSE KNOWLEDGE SPILLOVERS: A DYNAMIC FDI MODEL *

SOUTHERN INNOVATION AND REVERSE KNOWLEDGE SPILLOVERS: A DYNAMIC FDI MODEL * We develop a general equilibrium model of endogenous innovation and foreign direct investment (FDI). In the benchmark model, Northern firms innovate with the help of localized spillovers, and a share of new products is transferred to Southern production via FDI. An increase in Southern imitation risk reduces this share. In the extended model, we permit higher‐cost Southern innovation, which yields inefficient specialization in both regions and reduces global growth. However, it generates a U‐shaped relationship between FDI and local imitation. We also allow for “reverse” spillovers in knowledge to Northern innovation, which partially restore global efficiency and growth. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Economic Review Wiley

SOUTHERN INNOVATION AND REVERSE KNOWLEDGE SPILLOVERS: A DYNAMIC FDI MODEL *

International Economic Review , Volume 53 (1) – Feb 1, 2012

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References (40)

Publisher
Wiley
Copyright
© (2012) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
ISSN
0020-6598
eISSN
1468-2354
DOI
10.1111/j.1468-2354.2011.00680.x
Publisher site
See Article on Publisher Site

Abstract

We develop a general equilibrium model of endogenous innovation and foreign direct investment (FDI). In the benchmark model, Northern firms innovate with the help of localized spillovers, and a share of new products is transferred to Southern production via FDI. An increase in Southern imitation risk reduces this share. In the extended model, we permit higher‐cost Southern innovation, which yields inefficient specialization in both regions and reduces global growth. However, it generates a U‐shaped relationship between FDI and local imitation. We also allow for “reverse” spillovers in knowledge to Northern innovation, which partially restore global efficiency and growth.

Journal

International Economic ReviewWiley

Published: Feb 1, 2012

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