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Abstract
Foreign direct investment (FDI) by Northern firms in the South often induces technology spillovers which benefits Southern firms. This topic has recently received significant attention in the international trade literature. Is inducing FDI with technology spillovers always a good policy for the South? What are the optimal Intellectual Property Rights (IPR) policy and trade policy for the South and the world?
The thesis addresses these questions by exploring technology spillovers that is accompanied by a Northern firm's FDI in the South. It contains three closely related essays. The first two essays develop different frameworks of technology spillovers, namely quality-enhancing and cost-reducing technology spillovers. The goal of these essays is to provide an explanation for the North-South IPR conflict and suggest policy recommendations along this line. The third essay studies an export platform FDI model with technology spillovers. Our goal for this essay is to understand the connection between regional trade liberalization and IPR regime in the South.
The thesis leads to several new policy implications, some of which can be listed as follows. First, in the presence of quality-enhancing technology spillovers in the South, the Northern firm strategically reduces its product quality level under FDI in a range of parameterizations. Consequently, this leads to the possibility in which FDI hurts the South, and at the same time, the optimal level of spillovers for global welfare could be strictly less than South optimal level. Second, when spillovers are cost-reducing, these results do not necessarily hold. This is because the Northern firm chooses the minimum marginal cost level for its product regardless of its location choice. Under linear demand, we also find that, FDI improves Southern welfare and global welfare with cost-reducing spillovers. Consequently, cost-reducing spillovers and quality-enhancing spillovers can yield different, even contrasting, policy implications. Finally, if the Northern firm follows the export-platform FDI strategy then FDI benefits the South under a range of parameterizations. When export-platform FDI is optimal for the South, the greater the degree of trade liberalization between the South and the export market, the less incentive the South has toward protecting the technology of the Northern firm.