Essays on foreign direct investment, technology transfer and international trade : ricardian approaches and empirical evidence

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1 Essys on foreign direct investment, technology trnsfer nd interntionl trde : ricrdin pproches nd empiricl evidence Mohmed Sdi To cite this version: Mohmed Sdi. Essys on foreign direct investment, technology trnsfer nd interntionl trde : ricrdin pproches nd empiricl evidence. domin stic.educ. Université Pris-Est, 00. English. <NNT : 00PEST30>. <tel > HAL Id: tel Submitted on My 0 HAL is multi-disciplinry open ccess rchive for the deposit nd dissemintion of scientific reserch documents, whether they re published or not. The documents my come from teching nd reserch institutions in Frnce or brod, or from public or privte reserch centers. L rchive ouverte pluridisciplinire HAL, est destinée u dépôt et à l diffusion de documents scientifiques de niveu recherche, publiés ou non, émnnt des étblissements d enseignement et de recherche frnçis ou étrngers, des lbortoires publics ou privés.

2 Université Pris-Est U.F.R. de Sciences Economiques Ecole doctorle Orgnistions, Mrchés, Institutions THÈSE Pour obtenir le grde de Docteur de l Université Pris-Est Spécilité : sciences économiques Présentée et soutenue publiquement pr Mohmed Sdi le 9 octobre 00 Titre : Essys on foreign direct investment, technology trnsfer nd interntionl trde Ricrdin pproches nd empiricl evidence Directeur de thèse M. Dominique Redor, Professeur à l Université Pris-Est Mrne-L-Vllée JURY : Mme. Mélik Ben Slem, Professeur à l Université Pris-Est Mrne-L-Vllée M. Alin Desdoigts, Professeur à l Université Pris-Est Mrne-L-Vllée M. Lionel Fontgné, Professeur à l Université Pris Pnthéon -Sorbonne M. Joël Hellier (rpporteur), Professeur à l Université de Nntes M. Dominique Redor, Professeur à l Université Pris-Est Mrne-L-Vllée M. Jen Mrc Siroën (rpporteur), Professeur à l Université Pris-Duphine UPE

3 L université Pris-Est n entend donner ucune pprobtion ni improbtion ux opinions émises dns cette thèse. Ces opinions doivent être considérées comme propres à leur uteur. ii

4 A mes prents, à mes sœurs, à m grnd-mère, à Tpn Bisws iii

5 iv Remerciements Merci à tous ceux qui m ont permis de fire de cette thèse utre chose qu un trvil solitire. Je tiens à remercier en premier lieu Dominique Redor d voir été un directeur ttentif et ouvert et pour l confince et l liberté qu il m ccordées durnt l rédction de cette thèse insi que pour ses conseils réguliers, ses remrques visées et son soutien. De même, je remercie Henry Thompson, Terutomo Ozw, Kiyoshi Kojim, Tpn Bisws, Kwn Choi, Norihito Tnk, Subrt Ghtk, Alin Desdoigts, Jekterin Dmitrijev et Sylvin Zeghni qui ont commenté et rpporté certins de mes trvux. Je témoigne m vive grtitude à Dni Rodrik et Biley Klinger (de l Université de Hrvrd) pour leur ide très précieuse dns l utilistion de l indicteur de sophistiction des exporttions et pour leurs encourgements. Je remercie églement Monji Ben Chbâne (IEQ Tunis) pour ses conseils et s coopértion en mtière de collecte de données. Je remercie Joël Hellier et Jen-Mrc Siroën qui ont ccepté d être rpporteur de cette thèse, insi que Mélik Ben Slem, Alin Desdoigts et Lionel Fontgné qui ont ccepté d être membre de ce jury. Je remercie sincèrement toute l équipe du lbortoire Orgnistion et efficcité de l production (OEP) ERUDITE à l Université Pris-Est Mrne-L-Vllée. Je pense prticulièrement à Jen-Christophe Pereu, Mélik Ben Slem, Hervé Deflvrd, Mnon Dos Sntos, Alin Desdoigts Fbin Gouret et Jekterin Dmitrijev. Je remercie églement Nicols Noisel et Guillume Luney pour leur disponibilité et leur coopértion dns les différents dossiers de finncement de mes prticiptions ux conférences en Frnce et à l étrnger. J dresse ussi mes remerciements ux prticipnts des séminires et conférences dns lesquels des trvux extrits de mes chpitres ont été présentés (EEFS, 006, 007 ; 008 ; 009 ; JEPA, 006 ; AFSE, 007 ; RIEF ; 007 ; ACDD, 006 ; Université Montesquieu ; 006, Séminires OEP). Merci à l équipe pédgogique de l Université Pris-Est Mrne-L-Vllée de m voir ccueilli comme enseignnt, et prticulièrement à Dominique Redor, Hervé Deflvrd, Sylvin Zeghni, Melik Ben Slem, Alin Desdoigts et Mrc Ferrcci, à qui je dois des nnées de trvux dirigés mémorbles. Je remercie églement Anne-Cécile Pumier, Isbelle Frks, Cristin.Cotnroch, Noro Rfidison pour leurs coopértions dns l orgnistion des enseignements. L rédction de cette thèse doit beucoup à Jen Sutcliff et Julien Trudy. Leurs cours et teliers d nglis pour les doctornts et leur coopértion en corrigent certins de mes trvux ont grndement contribué à l méliortion de m thèse. Ces formtions m ont permis de bien présenter mes trvux dns des conférences interntionles et de créer des contcts vec des chercheurs méricins, jponis, nglis, etc. Je remercie les gents de sécurité de l Université Pris-Est Mrne-L-Vllée qui m ont permis, suivnt une utoristion d'ccès durnt les périodes de fermeture, de trviller u lbortoire dns des bonnes conditions. Enfin, je remercie tous ceux qui prtgent m vie hors trvil, et qui directement ou indirectement, m ont soutenu dns ce projet de thèse.

6 v Abstrct Ricrdo is commonly celebrted for the theoreticl chievements -his theory of growth which introduces us to the concept of trp of industrilism nd his theory of comprtive dvntge tht introduces us to the ide tht technologicl differences cross countries is the bsis of interntionl trde. Wht role Ricrdo s theories hve given to foreign direct investment (FDI) hs remined less explored issue. Thus, it is certinly relevnt to study the implictions of FDI nd technology trnsfer for these theories. This thesis puts bck the Ricrdin growth bottleneck nd the Ricrdin trde pproches towrd FDI nd technology trnsfer t the forefront of nlysis, builds nd develops new theoreticl settings nd predictions. Moreover, this thesis provides new empiricl pplictions. This thesis consists of four chpters. Two prts emerge. In the first prt, we minly revisit nd reformulte the Jpnese economic thought towrd outwrd FDI, within the Ricrdin context. We lso implement econometric estimtion to test the relevnce nd usefulness of this theoreticl pproch to outwrd FDI from ctching-up countries. In the second prt, we provide theoreticl frmeworks with empiricl pplictions. We focus on the effects of technologicl inflows, especilly vi inwrd FDI, on the host developing countries nd we develop new Ricrdin pproches with empiricl follow-up on the predictions. In chpter, we focus on outwrd FDI s n escpe response to home country growth bottlenecks, which represents n importnt but under-explored phenomenon in the FDI literture. We review the push-fctor pproches bsed on the pressure effect of the Ricrdin bottlenecks to explin outwrd FDI. We reconsider Ozw s mcroeconomic theory of Jpnese outwrd FDI, extend it nd rgue for widespred pplicbility of FDI imed t overcoming generlized Ricrdin bottlenecks, especilly, nowdys, nturl resource-scrcity nd the instible quest for energy, industril rw mterils nd fuels. Our empiricl findings confirm tht outwrd FDI from emerging countries nd trnsition economies (ctching-up countries) cts s n escpe response to Ricrdin bottlenecks nd strengthen the resonbleness, the usefulness nd the empiricl robustness of Ozw s mcroeconomic theory of FDI. In chpter, we reformulte Kojim s correspondence principle within Ricrdin setting nd point out tht OFDI originting from the comprtively disdvntged industry in the developed country nd going to the comprtively dvntged industry in the developing country should follow the direction of bsolute profit rtes which is reflection of the comprtive dvntge ptterns. In chpter 3, we minly focus, in the first section, on the welfre effect of North- South technology trnsfer within Ricrdin setting. We single out the respective role of the reltive size of both countries, the efficiency of the technology which is trnsferred, nd the elsticity of substitution between the goods which re produced. In the second section of chpter 3, we explore wht re the consequences of free technology trnsfer, licensing nd FDI on the North-South welfre. We lso provide n empiricl nlysis of the effect of licensing nd foreign presence on the developing countries terms of trde. We find tht inwrd FDI nd roylties pyment deteriorte the terms of trde of the developing nd emerging countries.

7 vi In chpter 4, we combine n extended continuum Ricrdin trde setting which rnk sophistiction of exports by their technology intensity with the new dvnced wve of empiricl literture on export sophistiction. Using dt from the developing nd emerging countries, we test the core theoreticl prediction tht foreign involvement nd export penetrtion fcilitte technologicl progress nd upgrdes export sophistiction of country by leding it to expnd the rnge of goods tht it produces towrd sectors with rising productivity. In our next step, we bring the debte on the deteriortion of the developing countries terms of trde bck into the limelight. Importntly, we show tht despite the increse in their export sophistiction, the developing countries continue to fce terms of trde deteriortion. Key words: Ricrdin theory, FDI, technology trnsfer, licensing, terms of trde, welfre, export sophistiction.

8 vii Résumé : Essis sur l investissement direct étrnger, le trnsfert technologique et le commerce interntionl : pproches ricrdiennes et nlyses empiriques Ricrdo est célébré pour ses théories- s théorie de l croissnce qui nous enseigne le concept de l trppe à stgntion industrielle et s théorie de l vntge comprtif selon lquelle les différences de technologie déterminent l direction de l échnge interntionl. Quel rôle les théories ricrdiennes ont-elles conscré à l'investissement direct étrnger (IDE) demeure une question peu explorée. L prise en compte de l IDE et du trnsfert de technologie pr ces théories est l objet principl de cette thèse. Elle met l ccent sur les pproches ricrdiennes de l croissnce et du commerce interntionl pour triter l IDE, le trnsfert technologique. Elle construit et développe de nouvelles pproches théoriques et prédictions dns un cdre d inspirtion ricrdienne. Des nlyses économétriques sont ensuite effectuées pour tester ces prédictions. Cette thèse se compose de qutre chpitres. Deux prties qui contiennent chcune deux chpitres sont présentées. L première prtie propose une revisittion et une reformultion des pproches mcroéconomiques de l IDE suivnt une pproche ricrdienne. L deuxième prtie trite les reltions entre l IDE, le trnsfert technologique, l sophistiction des exporttions et les termes de l échnge des pys en développement et fournit des nlyses empiriques à l ppui pour tester les prédictions ricrdiennes. Le premier chpitre réexmine et générlise l pproche de l IDE pr l théorie ricrdienne de croissnce. Ce chpitre prolonge l nlyse d Ozw, met l ccent sur «les goulots d étrnglement ricrdiens» et le risque de trppe à stgntion industrielle à l Ricrdo-Hicks et exmine les fcteurs «push» expliqunt l investissement direct sortnt. Les prédictions de cette pproche sont ensuite testées sur un pnel de pys émergents et en trnsition. Les résultts économétriques portnt sur un pnel de pys émergents et en trnsition confirment les prédictions théoriques de l pproche mcroéconomique d Ozw en mtière d IDE sortnt. Le second chpitre développe un modèle ricrdien clssique en introduisnt l IDE Nord Sud. Nous reformulons le «principe de correspondnce» développé pr Kojim. Nous montrons que l correspondnce entre les tux de profits bsolus et les vntges comprtifs explique l émergence de l IDE originire des secteurs comprtivement désvntgés dns les pys développés et destinés ux secteurs comprtivement vntgés dns les pys en développement. Le troisième chpitre, dns s première section, développe un modèle ricrdien Nord- Sud vec trnsfert de technologie. Notre contribution consiste à exminer le rôle de l élsticité de substitution entre les biens dns les conséquences du trnsfert technologique sur les termes de l échnge et le bien-être des pys. Les conditions d une bisse des termes de l échnge pour le pys en développement sont explicitées, et finlement sont précisées les conditions dns lesquelles le bien être du pys en développement peut bisser à l suite de ce trnsfert de technologie. L seconde section prolonge l nlyse ux cs du trnsfert technologique vi l IDE et les licenses. Les tests empiriques montrent que les IDE entrnts et le versement de roylties s ccompgnent d une bisse des termes de l échnge pour les pys en développement.

9 viii Le qutrième chpitre ssocie le modèle ricrdien vec un continuum de biens ux trvux empiriques de Husmnn, Hwng et Rodrick (007) et de Rodrik (006) sur l sophistiction des exporttions. Un modèle empirique est développé fin d étblir les liens qui existent entre l présence des firmes étrngères et l sophistiction des exporttions des pys en développement. Ensuite, l question des termes de l échnge des pys en développement est mise en évidence. Les tests empiriques sur un pnel de pys en développement montrent que l ugmenttion de l sophistiction des exporttions des pys en développement s ccompgne d une bisse de leurs termes de l échnge Mots-clés : théorie ricrdienne, IDE, trnsfert technologique, licence, termes de l échnge, bien-être, sophistiction des exporttions.

10 ix Contents First Prt. Generl Introduction REVISITING AND REFORMULATING THE MACROECONOMIC APPROACHES TO FDI : RICARDIAN SETTINGS 9 Chpter. Generlized Ricrdin growth bottlenecks nd outwrd FDI : New evidence on the emerging multintionls. Introduction.. On the Ricrdin growth pproch towrd FDI Is the Ricrdin growth theory pssé - or still relevnt? FDI from nturl resource scrce industrilized economies: vibrnt reserch topic 0... Nturl resource scrcity nd growth..... Resource seeking FDI: Ricrdin pproch A repliction of the Jpnese Ricrdin-trp stge of trnsntionlism Fuelling the industril development nd economic growth of Asin Drivers Chin nd 5 Indi Push effect of lnd nd lbour shortges Push effect of lnd (housing mrket bottleneck) nd industril site shortges Push effect of lbour shortge An empiricl follow-up on Ozw s mcroeconomic theory of outwrd FDI: 3 new evidence from ctching-up countries.3. Econometric methodology nd estimtion results from n incomplete pnel Additionl tests nd robustness checks Estimtions nd results from blnced pnel A Conclusion.. Appendix for chpter Chpter. North-South trde nd reformulted Kojim s «correspondence 74 principle»: A Ricrdin trde pproch. Introduction. 74. Ricrdin trde pproches towrd FDI : review of literture Direct investment s cpitl flow FDI, technology trnsfer, product-cycle nd trde FDI nd unit lbour costs Mcroeconomic pproch to FDI Kojim s model of comprtive investment profitbilities Heckscher - Ohlin setting Correspondence between comprtive dvntges nd comprtive profit rtes Pro-trde FDI nd the flying geese model The flying geese model: theory nd evidence FDI-cum-trde pproch Trnsferbility of the flying geese model... 97

11 x.4 North - South FDI nd reformulted correspondence principle : Ricrdin pproch FDI nd comprtive dvntge: brief review of literture Theoreticl spects Some empiricl spects Reformulting Kojim correspondence principle : Ricrdin setting Conditions for North-South FDI Technologicl superiority Industry-specificity of cpitl The reformulted correspondence principle nd the technology-trde-welfre link Closing the model The reformulted correspondence principle nd the welfre nlysis 8.5 Conclusion Second Prt. THE EFFECT OF TECHNOLOGICAL INFLOWS ON WELFARE, TERMS OF TRADE AND EXPORT SOPHISTICATION OF THE DEVELOPING COUNTRIES: NEW RICARDIAN PREDICTIONS AND EVIDENCE Chpter 3. Technology trnsfer nd North-South trde : 4 theoreticl nd empiricl ssessment 3. Introduction 4 3. Technology trnsfer, consumer preferences nd welfre in Ricrdin model The structure of consumer preferences nd the terms of trde in the Ricrdin model Immiserizing speciliztion of developing countries Introducing technology trnsfer in the Ricrdin Model with CES utility function Technology trnsfer, speciliztion nd developing country welfre A two-good setting Extension of the model to n commodities Mode of technology trnsfer nd North-South trde nd welfre: 39 Revisiting Kojim Ozw propositions 3.3. Kojim nd Ozw mcroeconomic pproch to FDI nd technology trnsfer Kojim Ozw propositions on technology trnsfer Free technology trnsfer Northern exploittion of technologicl superiority through licensing nd FDI: re Kojim 5 nd Ozw right? Technology trnsfer vi licensing Licensing Welfre effect of technology trnsfer vi licensing Technology trnsfer vi FDI FDI nd qusi-rents Welfre effect of technology trnsfer vi FDI The effect of licensing nd inwrd FDI on the developing country terms of trde: n 6 empiricl nlysis Mesure of terms of trde Model, estimtion nd results Robustness check: lterntive mesures of rel roylties 76

12 xi Estimtions nd results from lrge incomplete pnel Conclusion 88 3.A Appendix of chpter 3 89 Chpter 4. Export sophistiction of developing countries: 00 n empiricl follow-up on n extended DFS (977) frmework 4. Introduction The link between openness nd technologicl progress Foreign presence, productivity nd technologicl progress Openness nd technology diffusion Technology diffusion through imports Technology diffusion through exports An extended continuum Ricrdin setting Goods nd technology Importing superior technology, technologicl inflow nd diffusion Technology gp within comprtive dvntge frmework Linking theory to empirics Mesure of export sophistiction The North-South trde cut-off ( ~ z ) Construction of the HHR export sophistiction mesure Export sophistiction: Testble estimtion, dt nd econometric nlysis Model Estimtion nd results Model Estimtion nd results Additionl tests using reltive export sophistiction Estimtion results from lrge incomplete pnel Putting bck the terms of trde deteriortion t the forefront of the nlysis Is there trp for the developing countries? Testble estimtion, dt nd econometric nlysis Instrumentl vrible estimtion nd exogeneity checks ; A Conclusion Appendix for chpter Generl conclusion References 33

13 Generl Introduction Ricrdo is commonly celebrted for the theoreticl chievements-his theory of growth which introduces us to the concept of trp of industrilism nd his theory of comprtive dvntge which introduces us to the ide tht technologicl differences cross countries mtter in the interntionl trde. Wht role Ricrdo s theories hve given to foreign direct investment (FDI) hs remined less explored issue. Thus, it is certinly relevnt to study the implictions of FDI nd technology trnsfer (TT) for these theories. This thesis focuses on the Ricrdin pproches towrd FDI nd TT, puts bck the Ricrdin growth bottleneck nd the Ricrdin trde setting t the forefront of nlysis nd provides empiricl pplictions to test new predictions. The Ricrdin growth theory is the very first mcroeconomic theory of stgntion due to profit decline. Ricrdo pointed out how the irremovble scrcity of rble lnd (on which griculturl output is subjected to the lw of diminishing mrginl returns) nd the Mlthusin popultion growth phenomenon would increse food prices nd money wges nd eventully erode the entrepreneur s profit (reinvestble cpitl). The net outcome is the complete evportion of investble funds nd the rrivl of stgnted economy (see Ozw, 98, 005). Ricrdo s theory of growth stgntion ws mintined by Hicks (973, 974, 98). Hicks pplied it to fst-growing economy nd stted tht irremovble scrcity of lbour nd lnd would in the end, constrin the pce of economic growth. Hicks s growth model cn be combined with Ricrdo s theory of stgntion into wht my be clled the Ricrdo-Hicksin trp of industril development (Ozw, 979,b, 993, 005, 009). According to this Ricrdo-Hicksin theory of growth bottlenecks, n industril economy cnnot expnd indefinitely, s sooner or lter it must encounter irremovble scrcities of key productive fctors such s lnd (for industril sites), nturl resources nd lbour - clled the Ricrdo- Hicksin shortge of key productive fctors 3. Hicks emphsized how the impulse of n invention which he defined s the minspring of economic growth proceeds to work itself out, eventully succumbing to the lw of diminishing returns in n industril world. A generliztion of the Ricrdin trp of growth bottlenecks (Hicksin generliztion of the Ricrdin theory of stgntion). 3 Ozw s mcroeconomic theory of Jpnese FDI is bsed on the clssicl growth theory-the Ricrdo-Hicksin trp of industril stgntion.

14 There is plethor of studies on the developing countries s recipient of FDI (see Lipsey, 004). By contrst, much less ttention hs been pid to the developing countries position s FDI sources. The novelty of our pproch is to focus on the generlized Ricrdin growth theory - clled the Ricrdo-Hicksin bottlenecks theory of industriliztion 4 nd to study the determinnts nd the home country push fctors for emerging multintionls. Why do emerging countries invest nd send their cpitl brod? Wht re the home-country chrcteristics nd forces tht push for outwrd FDI (herefter OFDI for short)? Is Ozw s (979,b) mcroeconomic theory for OFDI (bsed on the Ricrdo-Hicksin bottlenecks theory of industriliztion ) pssé or still relevnt 5? Answers to these questions depend on the emerging countries nd trnsition economies motives nd need creful econometric study. The Ricrdin trde pproch to FDI nd technology trnsfer 6 hs become more importnt in the new dvnced literture on technology nd trde. This evolution hs led Ricrdin nlyticl models to tke center stge. The min dvntge is tht the Ricrdin model llows for technologicl differences, which in prctice seem very significnt (Mbye nd Golub, 00, p.30) 7. This model provides the simplest frmework in which one cn exmine how ntionl differences in technologicl cpbilities give rise to speciliztion nd trde. A country s technology is cptured by set of lbour input coefficients per unit of output of ech commodity. The inter country differences in unit lbour requirements re linked to the technicl knowledge or blueprints tht cn be trnsferred brod (Beldi et l., 997). Noteworthy, Tylor (993) pointed out the reltive simplicity nd the proven usefulness nd fruitfulness of the Ricrdin trde pproch in exmining mny issues. He illustrted, in comprtive stedy-stte exercises, the trctbility of the Ricrdin pproch, the ese with which determinte results cn be obtined, nd the importnce of comprtive nd bsolute dvntges (Tylor, 993, p.4). According to the survey of Grossmn nd Helpmn 4 See Ozw (009, p.60).ozw (009) speks bout the Ricrdo-Hicksin limits of industrilism. 5 Ozw, T. (979), Interntionl Investment nd Industril Structure: New Theoreticl Implictions from the Jpnese Experience, Oxford Economic Ppers, vol.3:pp.7 9. Ozw, T. (979b), Multintionlism, Jpnese style: The politicl economy of outwrd dependency, Princeton University Press. 6 FDI- investment tht gives n investor control over the firms tht operte in foreign countries- is growing in importnce s chnnel of interntionl technology trnsfer (TT). The issue of TT nd the credibility of committed policies re hotly debted contemporry issues. Trnsfer of technology in the interntionl context hs been quite n interesting nd vibrnt reserch topic. It refers to ny process by which country gins ccess to technicl informtion of foreign country nd successfully bsorbs it into its production process. 7 See lso Ceglowski & Golub (007), Edwrds & Golub (004), Golub (995, 999), Golub &Hsieh (000) nd Hrrign (003).

15 (995), the Ricrdin model is widely used s building block in the literture on technology nd trde. The Ricrdin trde pproches hve experienced renissnce nd resurgence of interest for the nlysis of trde ptterns, technology trnsfer nd FDI 8 in the 000s. Importntly, this thesis pys specil ttention to the inter-country effects of technology shocks nd FDI in globlized trding world nd ccentutes the usefulness of the Ricrdin trde pproches. To nrrow the North-South technology gp, the developing countries hve to dopt new technologies. FDI nd trde hve n importnt role to ply in crrying out this tsk. These countries hve become quite eger to ttrct FDI. This egerness my be explined by the enhnced wreness tht FDI cn serve s n importnt chnnel of TT 9. A relted literture focuses on the technologicl content of FDI nd considers technology nd mngeril tlent s the key ingredients of FDI. (Root, 994; Bi et l., 004; Bitzer et l., 008; Cmpos nd Kinoshit, 00; Cheng et l., 00, 005; Kojim, 000; Sggi, 009) 0. Following Antràs (005) nd Lu (005, 007), North-South FDI refers to the process of TT nd tkes the form of building up production sites in the South nd modifying operting procedures to suit Southern conditions tht requires Southern lbour input. FDI is trditionlly regrded s pckge of cpitl, technology nd mngement. With the incresing integrtion of the globl cpitl mrket nd the development of domestic cpitl mrkets in mny host countries of multintionls firms (herefter MNFs for short), cpitl mobility from the home countries of MNFs to the host countries seems to hve become the lest importnt ingredient of FDI (Cheng et l., 005). For exmple, Krugmn (000) provides some evidence bout the lck of strong positive correltion between totl cpitl flows nd FDI flows. Blomstrom 8 See Bombrdini et l. (009), Bond (007),Cheng et l.(005), Costinot (009,b,c),Costinot nd Komunjer (008), Crozet (009), Jones(008,b), Jones nd Ruffin (008), Mrjit nd Beldi (009),Mtsuym(007), Okubo (009), Ruffin (009), Ruffin nd Jones(007), Smuelson(004) nd Ju nd Yng(009). 9 A huge literture points out the importnce of FDI s relevnt chnnel of TT. See Glss nd Sggi (00, 008), Görg nd Greenwy (004), Hoekmn et l.(005), Keller (00), Lipsey (004), Sggi (00, 009), Singh & Mrjit (003) nd for review of literture. Attrcting FDI is n effective wy of introducing dvnced technology to host countries (Liu nd Wng, 003, p.945). 0 Bi et l. (004) investigted the revenue shring in joint ventures with enterprises. The uthors presented model of tem production motivted by the stylized fcts found from smple of 00 joint-venture contrcts in Chin. In their study, 95% of the foreign prtners provide ptent, design, trdemrk nd equipment, 56% provide technicl trining nd 49% provide technicl nd mngement support. Cheng et l.(00, p.69) spek bout FDI, or equivlently technology trnsfer. Krugmn (000) studied the cse of Asin countries tht underwent the 997 finncil crisis nd noted tht the chrcteristic feture of cpitl flows during some finncil crises is the contrst between cpitl outflows ssocited with portfolio investments, nd the simultneous inwrd FDI. 3

16 nd Kokko (994) showed tht Swedish MNFs expnded FDI despite restriction on finncing such investment with funds rised in Sweden. They rgued tht the min reson for FDI by Swedish firms hs been technologicl dvntges. Bitzer et l.(008) find tht OFDI is significnt chnnel for diffusion of knowledge from the developed countries to the host countries. In this cse, FDI will entil importnt knowledge trnsfer in terms of trining, skill cquisition, production methods nd new orgnistionl nd mngeril techniques. Cheng et l. (005, p.478) regrd FDI s synonymous to technology (nd mngeril skill) trnsfer. The theoreticl nd the empiricl bckground of our Ricrdin trde settings re the following. Mny developing countries, in their technologicl bsorptive effort, were observed to dopt policy of technology import nd cquisition of superior technologies through MNFs, FDI nd licensing s mens of technologicl upgrdtion nd economic development (see Trun nd Mrjit, 003). We focus on the North-South effects of technology shocks nd highlight the convenience of Ricrdin model in studying FDI, TT, welfre nd export sophistiction of the developing countries. In discussing technology within Southern perspective, we shll ssume tht technicl progress is represented by new nd better sets of blueprints tht my be trnsferred vi FDI nd licensing or for free. The core objective is to develop Ricrdin trde pproches tht model technology trnsfer vi FDI nd to explore its implictions within North-South perspective. We lso provide n empiricl follow-up on these pproches. Two prts emerge in this thesis. In the first prt, we minly revisit nd reconsider the Jpnese economic thought (Kojim, 978, 000; Kojim nd Ozw, 984; Lee, 984; Ozw, 979,b, 007, 009) towrd OFDI, within the Ricrdin context. We lso implement n econometric estimtion to test the relevnce nd usefulness of this theoreticl pproch to OFDI from the ctching-up countries. In the second prt, we provide new theoreticl frmework with empiricl pplictions. We focus on the effects of technologicl inflows, especilly vi inwrd FDI, on the host developing countries nd we develop new Ricrdin pproches with empiricl follow-up on the predictions. The key contributors of this school re Kojim nd Ozw. They develop micro-mcro models which combine micro vribles with mcro vribles to ccount for trends in ntion s dynmic comprtive dvntge. 4

17 The contributions nd novelties of this thesis re s follows: In chpter, within dynmic perspective, we re-exmine the Ricrdin growth pproch towrd FDI. We focus on OFDI s n escpe response to home country growth bottlenecks, which represents n importnt but under-explored phenomenon in the FDI literture. We review the push-fctor pproches bsed on the pressure effect of the Ricrdin bottlenecks 3 to explin OFDI. We reconsider Ozw s (979,b) work on Jpnese OFDI, extend it nd rgue for widespred pplicbility of FDI imed t overcoming generlized Ricrdin bottlenecks, especilly, nowdys, nturl resourcescrcity nd the huge need- hunger- for industril rw mterils nd fuels. We show tht the history of Jpnese Ricrdin bottlenecks pushing for OFDI replictes itself in mny countries. We confirm tht the Ricrdin growth theory, when generlized nd well interpreted offers simple nd yet powerful frmework, revels usefulness nd conveniently provides relevnt set-up in exmining these issues. In our next step, we implement n empiricl follow-up on Ozw s mcroeconomic theory of OFDI to provide new evidence on the emergence of MNFs from rpidly ctching-up countries. Our empiricl findings confirm tht OFDI cts s n escpe from the Ricrdin bottlenecks nd strengthen the resonbleness, the usefulness nd the empiricl robustness of Ozw mcroeconomic theory considerbly. In chpter, we develop new theoreticl model to determine the reltionships between country s comprtive dvntge, its OFDI nd the interntionl division of lbour between investing developed nd host developing countries in competitive world. Using two-country, two-good Ricrdin trde model (à l Negishi (98)), we explin the emergence of North-South FDI nd we exmine its impct on the North-South trde nd welfre. We reformulte Kojim s correspondence principle within this Ricrdin setting nd point out tht OFDI originting from the comprtively disdvntged industry in the developed country nd going to the comprtively dvntged industry in the developing country should follow the direction of bsolute profit rtes which is reflection of the comprtive dvntge ptterns. Concerns over the impct on welfre re expressed. We show tht the developed country s welfre improves with this direction of FDI due to n improvement in its terms of trde. 3 This term is borrowed from Ozw (98, 99, 005, 009) nd Dunning et l (998). 5