North–South FDI and directed technical change

Abstract

This paper presents a model to explore how patterns of North–South FDI affect the bias of technology and the host country's economic growth. We develop our growth model in a unified framework of directed technical change and cooperative game. The host country's economic growth is embedded in a duopolistic international joint venture. Our model illustrates that: (i) the relative skill-augmenting technology is decreasing in the North–South relative bargaining power if technical and nontechnical intermediates are substitutes, but increasing if they are complements; (ii) there exists an inverse U-shaped relationship between the North–South relative profit share and the host country's steady-state economic growth rate.