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The
model shows that the net effect of an inward FDI policy rests mainly on three
factors: the R&D intensity of the sector (which increases with ); the intensity of spillovers
(which rises with ); the size of the
necessary subsidy (if attracting FDI).
Inward
FDI is positive for the host-country consumers, has an ambiguous effect on
local producers’ R&D and profits.
In
high-technology sectors, a policy of attracting inward FDI may increase
welfare in both the home and host countries.
The
effect on host-country welfare is found to be more beneficial if
technological spillovers are national, instead of international, in scope.
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