Optimal Foreign Investment Research Articles

Optimizing Foreign Investment of Container Port in China

With the gradual deregulation of foreign investment into its port sector, China has formed a variety of port financing channels. Compared to the state investment and other sources of bank loans, self-raised funds and IPO, the study presents an analysis of the weight of the operation profit of foreign investment in the government’s objective and foreign investment proportion impacting on the tariff and social welfare of the port. The main finding is that the optimal foreign investment of container port is in existence to maximize social welfare of local port administration.

Foreign Direct Investment with Endogenous Technology Choice

AbstractIn this paper, we analyse the optimal foreign direct investment (FDI) of a firm operating in a duopolistic market. FDI induces technological spillovers to a competitor in the foreign country; the intensity of which depends on the absorptive capacity of the foreign firm and the size of the technological gap. We characterize a technology spillover threshold and show that for an intensity of spillovers below this threshold, there is a unique locally asymptotic stable steady state with a positive capital stock in the developing country. Furthermore, we characterize how optimal foreign investment patterns and the investor's value function depend on the level of technology transferred and characterize the optimal level to be used for the FDI.

Foreign Direct Investment with Endogenous Technology Choice

In this paper, we analyze optimal foreign direct investment of a firm which operates in a duopolistic market. We characterize a technology spillover threshold and show that for an intensity of spillovers below this threshold, there is a unique locally asymptotic stable steady state with a positive capital stock in the developing country. Furthermore, we characterize how optimal foreign investment patterns and the investor's value function depend on the level of technology transferred and characterize the optimal level to be used for the foreign direct investment.

Optimal foreign investment dynamics in the presence of technological spillovers

In this paper we present a dynamic model of a firm which is deciding whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to foreign potential competitors. Spillovers over time increase productivity of firms in the foreign country and make them stronger competitors on the common market. The paper analyzes the inter-temporally optimal behavior of the firm and shows that two outcomes are possible in the long-run. One outcome is that there is one steady state where the firm invests a positive amount in the foreign country and the other outcome is a continuum of steady states with no investment. The paper then derives conditions such that it is optimal for the firm to invest in the foreign country and characterizes different types of optimal dynamic investment patterns. In addition, using numerical dynamic optimization methods, the effect of the speed of technology adoption and of the wage differential on total labor income in the home country is studied taking into account the transition dynamics.

Adverse selection, asymmetric information, and foreign investment policies

This paper explores the welfare consequences of foreign investment taxation in a small open economy, based on the notion that the true productivity of imported capital may be unknown to policy-makers. It is shown that while asymmetric information between capital importers and the host government precludes the use of a productivity specific policy measure, an across-the-board policy suffers from the problem of adverse selection among capital imports of differential productivities. Conditions under which a reversal of the optimal foreign investment policy in the face of asymmetric information are examined.

Reconsideration of Some Paradoxes in the Theory of Optimal Foreign Investment*

The paper re‐examines some ‘paradoxical’ propositions on optimal foreign investment discussed by Negishi and Long in the context of growing international economies. It demonstrates the following rather critical conclusions:first, the unusual message of the Negishi‐Long paradoxes derives essentially from the requirement of growth equilibria rather than that of optimality; second, one of the paradoxes, attributable to Long, is at best a characterization of local optimum and, therefore, completely misleading as a policy recommendation:and thirdly, an appropriate change of standard of references would dissolve the Negishi‐Long paradoxes and reveal a neglected true paradox of the model.

Optimal Foreign Investment and International Trade

Optimal Foreign Investment and International Trade