A general equilibriumm model of a foreign multinational enterprise's decisions on establishing a wholly-owned subsidiary or forming a joint venture is built on firm-specific knowledge and plant-specific knowledge when there are intraindustry and interindustry technology spillovers. The welfare effects of a host developing country under closed economies, unrestricted foreign direct investment, and the policy of minimum local ownership requirements are compared. A developing country's worry is confirmed: Introduction of competition from foreign firms may not improve the welfare of the host country. However, the minimum local ownership requirement is Pareto-superior to a closed economy.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Bernstein, Jeffrey I. (1988) “Costs of Production, Intra- and Interindustry R&D Spillovers: Canadian Evidence,”Canadian Economics Association 21, 324–347.
Bernstein, Jeffrey I. and M. Ishaq Nadiri (1988) “Interindustry R&D Spillovers, Rates of Returns, and Production in High-Tech Industries,”American Economic Review 78, 429–434.
Blomström, Magnus and Hakan Persson (1983) “Foreign Investment and Spillover Efficiency in an Underdeveloped Economy: Evidence from the Mexican Manufacturing Industry,”World Development 11, 493–501.
Brander, James A. (1981) “Intra-Industry Trade in Identical Commodities,”Journal of International Economics 16, 1–14.
Das, Sanghamitra (1987) “Externalities, and Technology Transfer through Multinational Corporations,”Journal of International Economics 22, 171–182.
Ethier, Wilfred J. (1986) “The Multinational Firm,”The Quarterly Journal of Economics 101, 805–833.
Findlay, Ronald (1978) “Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model,”The Quarterly Journal of Economics 92, 1–16.
Globerman, Steven (1979) “Foreign Direct Investment and ‘Spillover’ Efficiency Benefits in Canadian Manufacturing Industries,”Canadian Journal of Economics 12, 42–56.
Haddad, Mona and Ann Harrison (1993) “Are There Positive Spillovers from Direct Foreign Investment? Evidence from Panel Data for Morocco,”Journal of Development Economics 42, 51–74.
Helpman, Elhanan (1984) “A Simple Theory of International Trade with Multinational Corporations,”Journal of Political Economy 92, 451–471.
Helpman, Elhanan (1984) “Multinational Corporations and Trade Structure,”Review of Economic Studies 52, 443–457.
Jaffe, Adam B. (1986) “Technology Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value,”American Economic Review 76, 984–1001.
Jaffe, Adam B., Manuel Trajtenberg, and Rebecca Henderson (1993) “Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations,”The Quarterly Journal of Economics 108, 577–598.
Kabiraj, Tarun and Sugata Marjit (1993) “International Technology Transfer under Potential Threat of Entry—A Cournot-Nash Framework,”Journal of Development Economics 42, 75–88.
Krugman, Paul R. (1983) “The ‘New Theories’ of International Trade and the Multinational Enterprise.” In Charles P. Kindleberger and David B. Audretsch (eds),The Multinational Corporation in the 1980s. Cambridge: MIT Press, pp. 57–73.
Leung, Wing-Fai (1993) “A Theory of Coexistence of International Joint Ventures and Wholly-Owned Subsidiaries,” manuscript.
Levin, Richard C. and Peter C. Reiss (1988) “Cost-Reducing and Demand-Creating R&D with Spillovers,”RAND Journal of Economics 19, 538–556.
Mansfield, Edwin and Anthony Romeo (1980) “Technology Transfer to Overseas Subsidiaries by U.S.-Based Firms,”Quarterly Journal of Economics 95, 737–750.
Markusen, James R. (1981) “Trade and the Gain from Trade with Imperfect Competition,”Journal of International Economics 11, 531–551.
Markusen, James R. (1984) “Multinationals, Multi-Plant Economies, and the Gains from Trade,”Journal of International Economics 16, 205–224.
Ono, Yoshiyasu and Akihisa Shibata (1992) “Spillover Effects of Supply-Side Changes in a Two-Country Economy with Capital Accumulation,”Journal of International Economics 33, 127–146.
Scherer, F.M. (1984) “Using Linked Patent and R&D Data to Measure Interindustry Technology Flows.” In Z. Griliches (ed),R&D, Patents, and Productivity. Chicago and London: University of Chicago Press, pp. 417–461.
Schmookler, J. (1966)Invention and Economic Growth. Harvard University Press.
Segerström, Paul S. (1991) “Innovation, Imitation, and Economic Growth,”Journal of Political Economy 99, 807–827.
Spence, Michael (1984) “Cost Reduction, Competition, and Industry Performance,”Econometrica 52, 101–121.
Teece, David I. (1977) “Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-How,”The Economic Journal 87, 242–261.
Wang, Jian-Ye and Magnus Blomström (1992) “Foreign Investment and Technology Transfer: A Simple Model,”European Economic Review 36, 137–155.
About this article
Cite this article
Leung, Wf. The choice between an international joint venture and a wholly-owned subsidiary in a developing country under technology spillover effects. Open Econ Rev 6, 341–368 (1995). https://doi.org/10.1007/BF01000387
- multinational enterprises
- joint ventures
- wholly-owned subsidiaries
- technology spillovers
- minimum local ownership requirements