Foreign Direct Investment and the Incentives to Innovate and Imitate

27 Pages Posted: 15 Dec 2009

See all articles by Irene Brambilla

Irene Brambilla

Universidad Nacional de La Plata

Galina Hale

University of California, Santa Cruz

Cheryl Long

Colgate University - Economics Department

Abstract

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm-level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.

Suggested Citation

Brambilla, Irene and Hale, Galina and Long, Cheryl Xiaoning, Foreign Direct Investment and the Incentives to Innovate and Imitate. Scandinavian Journal of Economics, Vol. 111, Issue 4, pp. 835-861, December 2009, Available at SSRN: https://ssrn.com/abstract=1521835 or http://dx.doi.org/10.1111/j.1467-9442.2009.01589.x

Irene Brambilla (Contact Author)

Universidad Nacional de La Plata ( email )

La Plata, Buenos Aires 1900
Argentina

Galina Hale

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Cheryl Xiaoning Long

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States

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