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SOUTHERN INNOVATION AND REVERSE KNOWLEDGE SPILLOVERS: A DYNAMIC FDI MODEL *
Author(s) -
He Yin,
Maskus Keith E.
Publication year - 2012
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2011.00680.x
Subject(s) - imitation , foreign direct investment , endogenous growth theory , benchmark (surveying) , economics , production (economics) , general equilibrium theory , investment (military) , industrial organization , economic geography , business , international trade , international economics , microeconomics , market economy , human capital , macroeconomics , geography , psychology , social psychology , geodesy , politics , political science , law
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.