Abstract
This paper examines how technological spillover affects foreign entry, R&D level, and the host country's welfare. It finds that the strategic effect decreases as R&D spillover increases. The foreign firm tends to raise the likelihood of choosing direct entry when the technology spillover is larger. For the foreign firms as well as the host country, there is no difference between choosing direct entry or acquisition when the market is extremely competitive. On regulation of foreign ownership, technology spillover creates the possibility of choosing direct entry for the foreign firm, which is different from the results obtained in Mattoo et al. (2004).
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