Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain

37 Pages Posted: 26 Nov 2012

See all articles by Juan Carluccio

Juan Carluccio

Banque de France; Paris School of Economics

Thibault Fally

UC Berkeley - ARE Department

Multiple version iconThere are 2 versions of this paper

Date Written: November 2012

Abstract

Does foreign entry improve host country productivity and welfare? Previous studies have looked at the role of backward linkages with domestic suppliers and their effects on domestic competitors. In this paper, we study how these externalities are affected by technological incompatibilities between foreign and domestic technologies. When foreign technologies require specialized inputs, some local suppliers self-select into production for multinational firms. A decrease in the cost of inputs compatible with the foreign technology has heterogeneous effects. It benefits foreign firms and the most productive downstream domestic firms that adopt the foreign technology, and negatively affects firms using the domestic technology. Technological incompatibilities reduce the welfare gains from openness to FDI, but this negative effect can be overcome by domestic technology adoption. The model's predictions are consistent with the stylized facts drawn from the empirical literature on FDI spillovers.

Keywords: spillovers, FDI, technological incompatibilities

JEL Classification: F23, O14

Suggested Citation

Carluccio, Juan and Fally, Thibault, Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain (November 2012). Banque de France Working Paper No. 410, Available at SSRN: https://ssrn.com/abstract=2180710 or http://dx.doi.org/10.2139/ssrn.2180710

Juan Carluccio (Contact Author)

Banque de France ( email )

Paris
France

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Thibault Fally

UC Berkeley - ARE Department ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://are.berkeley.edu/~fally/

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