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Kamal Saggi

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Dr. Kamal Saggi is the Dean of Social Sciences in the College of Arts and Science and the Frances and John Downing Family Professor of Eonomics at Vanderbilt University.Two major themes underlying Dr. Saggi’s research are: (i) the inter-relationships between intellectual property rights protection, trade, and technology transfer in the global economy and the (ii) economic underpinnings of the rules and regulations of the contemporary multilateral trading system as embodied in the major trade agreements of the World Trade Organization and its dispute settlement process.

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Papers by Kamal Saggi

Price Controls versus Compulsory Licensing: Effects on Patent Holders and Consumers

The WTO and Economic Development, 2019

We extend the model of Bond and Saggi (2014) in which a patent-holder chooses between direct entr... more We extend the model of Bond and Saggi (2014) in which a patent-holder chooses between direct entry and the voluntary licensing of its technology to a local firm in a developing country. We compare two scenarios: one where the country imposes a price control on the patent-holder and another where it issues a compulsory license to the local firm if the patent-holder decides to neither enter nor license its technology voluntarily. A price control makes entry less attractive to the patent-holder relative to voluntary licensing whereas the threat of compulsory licensing has the opposite effect. While a price control always makes the patent-holder worse off, the option of compulsory licensing can sometimes be to its advantage.

Regional exhaustion of intellectual property

International Journal of Economic Theory, Feb 14, 2014

This paper analyzes the causes and consequences of regional exhaustion of intellectual property, ... more This paper analyzes the causes and consequences of regional exhaustion of intellectual property, a policy regime under which a set of countries permit parallel imports from one another but not from the rest of the world. A three-country model is developed in which two high-income countries jointly choose their common exhaustion policy among national (ne), international (ie), or regional exhaustion (re). The key result is that the two high-income countries choose to implement re when they are relatively similar to each other and su¢ ciently highincome relative to the third country. We also consider a scenario where the policy choice set is restricted to non-discriminatory exhaustion regimes (i.e. ne or ie). Comparing the policy outcome of this constrained scenario with that of the core model, we show that the option to choose re makes all countries better o¤. Note: This paper is written in honor of Bill Ethier, one of the sharpest and wittiest economists that I have had the honor of knowing. Like most graduate students at Penn, I watched in awe as Bill expounded the theory of international trade and commercial policy without ever relying on any notes or slides, crutches that most of us cannot do without! His proli…c research contributions have left an indelible mark on the …eld. Not only have his ideas proven to be fundamental, they have been expressed with a beautiful economy of words that few can match.

On the emergence of an MFN club: equal treatment in an unequal world

Canadian Journal of Economics, Jan 28, 2009

Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN p... more Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tari¤ levels across countries, it increases aggregate world welfare; makes non-members worse o¤; and may even immiserize its high cost members. These results imply that (i) the core WTO rules such as MFN are valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional e¤ects of MFN maybe one reason why developing countries have often been exempted from this rule.

Strategic competition and optimal parallel import policy

Canadian Journal of Economics, Nov 1, 2012

This paper shows that parallel import policy can act as an instrument of strategic trade policy. ... more This paper shows that parallel import policy can act as an instrument of strategic trade policy. We demonstrate this result in two-country international duopoly where a domestic monopolist competes with a rival …rm in the foreign market if it chooses to incur the …xed investment cost of exporting. The two …rms sell horizontally di¤erentiated goods and compete in prices. When the foreign market is signi…cantly larger than the domestic one, the home …rm gains if it is unable to price discriminate; its desire to not deviate too far from its optimal monopoly price in the domestic market makes it (credibly) less aggressive in price competition abroad which softens price competition and raises pro…ts. On the other hand, when the foreign market is not signi…cantly larger, it is optimal for the home country to forbid parallel imports since international price discrimination yields higher pro…ts to the home …rm. We draw out the implications of the two types of parallel import policies for global welfare.

Intellectual Property Rights, Foreign Direct Investment, and Industrial Development

for helpful comments. The theoretical model presented in this paper builds upon and extends that ... more for helpful comments. The theoretical model presented in this paper builds upon and extends that presented in Branstetter, Fisman, Foley, and Saggi (2007). We thank Ray Fisman and Fritz Foley for their contributions to that earlier work and for useful comments on this research. All errors remain our own. Views expressed are those of the authors and do not necessarily reflect those of the Bureau of Economic Analysis or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Tariff bindings and bilateral cooperation on export cartels

Journal of Development Economics, May 1, 2007

Despite the negative international externalities that they generate, export cartels are legal in ... more Despite the negative international externalities that they generate, export cartels are legal in many countries. We use a repeated game approach to analyze cooperation between a low-income country (LIC) and its high-income country (HIC) trade partner where the HIC agrees to prevent its industry from organizing as an export cartel in return for a combination of improved market access (i.e. a tariff reduction) and a transfer from the LIC. If the LIC is subject to a tariff binding (say because of an existing trade agreement), the transfer it pays to the HIC increases and the scope for bilateral cooperation declines.

Encouraging Technology Transfer to Developing Countries: The Role of the WTO: The Role of Foreign Direct Investment

Commonwealth economic papers, Apr 1, 2004

Leasing versus selling and firm efficiency in oligopoly

Economics Letters, Mar 1, 2000

We examine sales and leasing of a durable good in an asymmetric duopoly. We show that the ineffic... more

Technical compatibility and the mode of foreign entry with network externalities

Canadian Journal of Economics, Feb 1, 2007

We examine the preferences of a foreign firm and a local government over two modes of foreign dir... more We examine the preferences of a foreign firm and a local government over two modes of foreign direct investment: de novo entry and acquisition of the domestic incumbent. Two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology. The relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality. The clash between the foreign firm's choice and the local government's ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm. JEL classification:F13, F23 Compatibilité technique et mode d'entrée des firmesétrangères en présence d'externalités de réseau. Ce texte examine les préférences d'une firmeétrangère et d'un gouvernement du pays hôte quantà deux modes d'investissement direct de l'étranger : entrée de novo de la firmeétrangère versus acquisition d'une firme domestique en place. Deux facteurs pris en compte sont la présence d'externalités de réseau et d'incompatibilité partielle entre la technologie locale et celle introduite par la firmeétrangère. L'impact relatif des modes d'entrée sur le mieux-être local dépend du degré de concurrence sur le marché et de l'importance des externalités de réseau. Le conflit entre les préférences de l'entreprisé etrangère et les préférences du gouvernement local peuventêtreà la source de politiques qui limitent le degré de propriétéétrangère permis.

Patent Rights and International Technology Transfer Through Direct Investment and Licensing

Cambridge University Press eBooks, Jun 8, 2005

In this collection, distinguished economists, political scientists, and legal experts discuss the... more In this collection, distinguished economists, political scientists, and legal experts discuss the implications of the ever more globalized protection of intellectual property rights for the ability of countries to provide their citizens with such important public goods as basic research, education, public health, and sound environmental policies. Such items increasingly depend on the exercise of private rights over technical inputs and information goods, which could usher in a brave new world of accelerating technological innovation. However, higher and more harmonized levels of international intellectual property rights could also throw up high roadblocks in the path of follow-on innovation, competition, and the attainment of other social objectives. It is at best unclear who represents the public interest in negotiating forums dominated by powerful knowledge cartels. This is the first book to assess the public processes and inputs that an emerging transnational system of innovation will need to promote technical progress, economic growth, and welfare for all participants.

On the International Linkages between Trade and Merger Policies*

Review of International Economics, May 1, 2006

This paper investigates the link between merger incentives of firms in two exporting countries an... more This paper investigates the link between merger incentives of firms in two exporting countries and the trade policy of an importing country. Exporting firms sell differentiated goods and compete in prices. Mergers are profitable but they have a strong free rider effect and reduce world welfare. Each exporting country prefers that the other allow its firms to merge and both are willing to permit an international merger but not a national one. The importing country's tariff increases in response to a merger(s) and in the absence of the most favored nation (MFN) clause, efficient exporters face higher tariffs. The tariff response of the importing country reverses the welfare effects of a merger in an exporting country. Thus, if the importing country cannot employ tariffs, exporting countries can pursue beggar thy neighbor merger policies that also lower world welfare.

The Case For Industrial Policy : A Critical Survey

World Bank policy research working paper, Feb 1, 2006

What are the underlying rationales for industrial policy? Does empirical evidence support the use... more What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? To address these questions, we provide a critical survey of the analytical literature on industrial policy. We also review some recent industry successes and argue that only a limited role was played by public interventions. Moreover, the recent ascendance of international industrial networks, which dominate the sectors in which least developed countries have in the past had considerable success, implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.

Entry into a Foreign Market: Foreign Direct Investment versus Licensing

Review of International Economics, Feb 1, 1996

We compare foreign direct investment (FDI) and technology licensing as two modes of entry into a ... more We compare foreign direct investment (FDI) and technology licensing as two modes of entry into a foreign market. While direct entry via FDI dissipates rcnts in the host country, opportunistic competition from a licensee may erode rcnts in the entrant's other markets. Since FDI increases competition in the host country while licensing stifles it. welfare is highcr under FDI than under licensing.

Trade, Foreign Direct Investment, and International Technology Transfer: A Survey

World Bank policy research working paper, Nov 30, 1999

What role does trade play in international technology transfer? Do technologies introduced by mul... more What role does trade play in international technology transfer? Do technologies introduced by multinational firms diffuse to local firms? What kinds of policies have proved successful in encouraging technology absorption from abroad and why? Using these questions as motivation, this article surveys the recent trade literature on international technology transfer, paying particular attention to the role of foreign direct investment. The literature argues that trade necessarily encourages growth only if knowledge spillovers are international in scope. Empirical evidence on the scope of knowledge spillovers (national versus international) is ambiguous. Several recent empirical plant-level studies have questioned earlier studies that argued that foreign direct investment has a positive impact on the productivity of local firms. Yet at the aggregate level, evidence supports the view that foreign direct investment has a positive effect on economic growth in the host country. Economic growth results from accumulation of factors of production or from improvements in technology or both. To encourage the generation of new knowledge, industrial countries have elaborate systems of intellectual property rights (iprs) in place and conduct the majority of the world's research and development (r&d). Technologies resulting from r&d spread throughout the world via a multitude of channels. On a fundamental level, international trade in technology differs from other indirect channels of international technology transfer, such as trade in goods and international movement of factors of production. This article critically surveys the literature that explores the roles of trade and foreign direct investment (fdi) as channels of international technology transfer. With respect to fdi, a distinction is made between wholly owned subsidiaries of multinational firms and international joint ventures. Furthermore, the role of fdi is contrasted with that of arm's-length channels of technology transfer, such as licensing. Although the literature has done a decent job of outlining the various channels through which international technology transfer occurs, not enough is known, both

Mode of foreign entry, technology transfer, and FDI policy

Journal of Development Economics, Oct 1, 2004

Foreign direct investment (fdi) can take place either through the direct entry of foreign …rms or... more Foreign direct investment (fdi) can take place either through the direct entry of foreign …rms or the acquisition of existing domestic …rms. The preferences of a foreign …rm and the host country government over these two modes of fdi are examined in the presence of costly technology transfer. The trade-o¤ between technology transfer and market competition emerges as a key determinant of preferences. The paper identi…es the circumstances in which the government and foreign …rm's choices diverge, and domestic welfare can be improved by restrictions on fdi which induce the foreign …rm to choose the socially preferred mode of entry.

Product differentiation, process R&D, and the nature of market competition

European Economic Review, 2002

We investigate the relationship between process and product R&D and compare the incentives for bo... more We investigate the relationship between process and product R&D and compare the incentives for both types of R&D under di!erent modes of market competition (Bertrand versus Cournot). It is shown that: (i) process R&D investments increase with the degree of product di!erentiation and "rms invest more in product R&D when they can do process R&D than when they cannot; (ii) Bertrand "rms have a stronger incentive for product R&D whereas Cournot "rms invest more in process R&D; and (iii) cooperation in product R&D promotes both types of R&D relative to competition whereas cooperation in both types of R&D discourages R&D relative to cooperation in just product R&D.

Is There a Case for Industrial Policy? A Critical Survey

World Bank Research Observer, Aug 5, 2006

What are the underlying rationales for industrial policy? Does empirical evidence support the use... more What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? This article addresses these questions through a critical survey of the analytical literature on industrial policy. It also reviews some recent industry successes and argues that public interventions have played only a limited role. Moreover, the recent ascendance and dominance of international production networks in the sectors in which developing countries once had considerable success implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.

International technology transfer and the technology gap

Journal of Development Economics, Apr 1, 1998

We build a quality ladders product cycle model that explores how the quality of Ž. technology tra... more We build a quality ladders product cycle model that explores how the quality of Ž. technology transferred through foreign direct investment FDI is linked to innovation and imitation when the absorptive capacity of LDCs is limited. Successful imitation of low quality levels makes FDI involving high quality levels possible through reduction of the technology gap. A subsidy to imitation or a tax on low quality FDI production encourages imitation relative to innovation, thus releasing the constraint faced by foreign firms seeking to produce in the South. These forces that stimulate high-quality FDI raise Southern welfare through lower prices, faster innovation and higher wages. q 1998 Elsevier Science B.V.

The Regulation of International Trade

Oxford University Press eBooks, Dec 19, 2022

National Treatment at the Wto: The Roles of Product and Country Heterogeneity

World Scientific Studies in International Economics, Sep 19, 2018

This paper analyzes the World Trade Organization's (WTO's) national treatment (NT) clause in a tw... more This paper analyzes the World Trade Organization's (WTO's) national treatment (NT) clause in a two-country model where quality of goods and/or market size are heterogenous across countries. When market size is symmetric across countries, a reciprocal NT agreement (i) benefits the high-quality country, (ii) hurts the low-quality country, and (iii) delivers higher aggregate world welfare. However, such an agreement can arise in equilibrium if the high-quality country's market is relatively bigger and the quality gap between goods is small (i.e., goods are sufficiently alike). The qualitative nature of these results does not change when quality is endogenously determined.

Price Controls versus Compulsory Licensing: Effects on Patent Holders and Consumers

The WTO and Economic Development, 2019

We extend the model of Bond and Saggi (2014) in which a patent-holder chooses between direct entr... more We extend the model of Bond and Saggi (2014) in which a patent-holder chooses between direct entry and the voluntary licensing of its technology to a local firm in a developing country. We compare two scenarios: one where the country imposes a price control on the patent-holder and another where it issues a compulsory license to the local firm if the patent-holder decides to neither enter nor license its technology voluntarily. A price control makes entry less attractive to the patent-holder relative to voluntary licensing whereas the threat of compulsory licensing has the opposite effect. While a price control always makes the patent-holder worse off, the option of compulsory licensing can sometimes be to its advantage.

Regional exhaustion of intellectual property

International Journal of Economic Theory, Feb 14, 2014

This paper analyzes the causes and consequences of regional exhaustion of intellectual property, ... more This paper analyzes the causes and consequences of regional exhaustion of intellectual property, a policy regime under which a set of countries permit parallel imports from one another but not from the rest of the world. A three-country model is developed in which two high-income countries jointly choose their common exhaustion policy among national (ne), international (ie), or regional exhaustion (re). The key result is that the two high-income countries choose to implement re when they are relatively similar to each other and su¢ ciently highincome relative to the third country. We also consider a scenario where the policy choice set is restricted to non-discriminatory exhaustion regimes (i.e. ne or ie). Comparing the policy outcome of this constrained scenario with that of the core model, we show that the option to choose re makes all countries better o¤. Note: This paper is written in honor of Bill Ethier, one of the sharpest and wittiest economists that I have had the honor of knowing. Like most graduate students at Penn, I watched in awe as Bill expounded the theory of international trade and commercial policy without ever relying on any notes or slides, crutches that most of us cannot do without! His proli…c research contributions have left an indelible mark on the …eld. Not only have his ideas proven to be fundamental, they have been expressed with a beautiful economy of words that few can match.

On the emergence of an MFN club: equal treatment in an unequal world

Canadian Journal of Economics, Jan 28, 2009

Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN p... more Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tari¤ levels across countries, it increases aggregate world welfare; makes non-members worse o¤; and may even immiserize its high cost members. These results imply that (i) the core WTO rules such as MFN are valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional e¤ects of MFN maybe one reason why developing countries have often been exempted from this rule.

Strategic competition and optimal parallel import policy

Canadian Journal of Economics, Nov 1, 2012

This paper shows that parallel import policy can act as an instrument of strategic trade policy. ... more This paper shows that parallel import policy can act as an instrument of strategic trade policy. We demonstrate this result in two-country international duopoly where a domestic monopolist competes with a rival …rm in the foreign market if it chooses to incur the …xed investment cost of exporting. The two …rms sell horizontally di¤erentiated goods and compete in prices. When the foreign market is signi…cantly larger than the domestic one, the home …rm gains if it is unable to price discriminate; its desire to not deviate too far from its optimal monopoly price in the domestic market makes it (credibly) less aggressive in price competition abroad which softens price competition and raises pro…ts. On the other hand, when the foreign market is not signi…cantly larger, it is optimal for the home country to forbid parallel imports since international price discrimination yields higher pro…ts to the home …rm. We draw out the implications of the two types of parallel import policies for global welfare.

Intellectual Property Rights, Foreign Direct Investment, and Industrial Development

for helpful comments. The theoretical model presented in this paper builds upon and extends that ... more for helpful comments. The theoretical model presented in this paper builds upon and extends that presented in Branstetter, Fisman, Foley, and Saggi (2007). We thank Ray Fisman and Fritz Foley for their contributions to that earlier work and for useful comments on this research. All errors remain our own. Views expressed are those of the authors and do not necessarily reflect those of the Bureau of Economic Analysis or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Tariff bindings and bilateral cooperation on export cartels

Journal of Development Economics, May 1, 2007

Despite the negative international externalities that they generate, export cartels are legal in ... more Despite the negative international externalities that they generate, export cartels are legal in many countries. We use a repeated game approach to analyze cooperation between a low-income country (LIC) and its high-income country (HIC) trade partner where the HIC agrees to prevent its industry from organizing as an export cartel in return for a combination of improved market access (i.e. a tariff reduction) and a transfer from the LIC. If the LIC is subject to a tariff binding (say because of an existing trade agreement), the transfer it pays to the HIC increases and the scope for bilateral cooperation declines.

Encouraging Technology Transfer to Developing Countries: The Role of the WTO: The Role of Foreign Direct Investment

Commonwealth economic papers, Apr 1, 2004

Leasing versus selling and firm efficiency in oligopoly

Economics Letters, Mar 1, 2000

We examine sales and leasing of a durable good in an asymmetric duopoly. We show that the ineffic... more

Technical compatibility and the mode of foreign entry with network externalities

Canadian Journal of Economics, Feb 1, 2007

We examine the preferences of a foreign firm and a local government over two modes of foreign dir... more We examine the preferences of a foreign firm and a local government over two modes of foreign direct investment: de novo entry and acquisition of the domestic incumbent. Two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology. The relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality. The clash between the foreign firm's choice and the local government's ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm. JEL classification:F13, F23 Compatibilité technique et mode d'entrée des firmesétrangères en présence d'externalités de réseau. Ce texte examine les préférences d'une firmeétrangère et d'un gouvernement du pays hôte quantà deux modes d'investissement direct de l'étranger : entrée de novo de la firmeétrangère versus acquisition d'une firme domestique en place. Deux facteurs pris en compte sont la présence d'externalités de réseau et d'incompatibilité partielle entre la technologie locale et celle introduite par la firmeétrangère. L'impact relatif des modes d'entrée sur le mieux-être local dépend du degré de concurrence sur le marché et de l'importance des externalités de réseau. Le conflit entre les préférences de l'entreprisé etrangère et les préférences du gouvernement local peuventêtreà la source de politiques qui limitent le degré de propriétéétrangère permis.

Patent Rights and International Technology Transfer Through Direct Investment and Licensing

Cambridge University Press eBooks, Jun 8, 2005

In this collection, distinguished economists, political scientists, and legal experts discuss the... more In this collection, distinguished economists, political scientists, and legal experts discuss the implications of the ever more globalized protection of intellectual property rights for the ability of countries to provide their citizens with such important public goods as basic research, education, public health, and sound environmental policies. Such items increasingly depend on the exercise of private rights over technical inputs and information goods, which could usher in a brave new world of accelerating technological innovation. However, higher and more harmonized levels of international intellectual property rights could also throw up high roadblocks in the path of follow-on innovation, competition, and the attainment of other social objectives. It is at best unclear who represents the public interest in negotiating forums dominated by powerful knowledge cartels. This is the first book to assess the public processes and inputs that an emerging transnational system of innovation will need to promote technical progress, economic growth, and welfare for all participants.

On the International Linkages between Trade and Merger Policies*

Review of International Economics, May 1, 2006

This paper investigates the link between merger incentives of firms in two exporting countries an... more This paper investigates the link between merger incentives of firms in two exporting countries and the trade policy of an importing country. Exporting firms sell differentiated goods and compete in prices. Mergers are profitable but they have a strong free rider effect and reduce world welfare. Each exporting country prefers that the other allow its firms to merge and both are willing to permit an international merger but not a national one. The importing country's tariff increases in response to a merger(s) and in the absence of the most favored nation (MFN) clause, efficient exporters face higher tariffs. The tariff response of the importing country reverses the welfare effects of a merger in an exporting country. Thus, if the importing country cannot employ tariffs, exporting countries can pursue beggar thy neighbor merger policies that also lower world welfare.

The Case For Industrial Policy : A Critical Survey

World Bank policy research working paper, Feb 1, 2006

What are the underlying rationales for industrial policy? Does empirical evidence support the use... more What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? To address these questions, we provide a critical survey of the analytical literature on industrial policy. We also review some recent industry successes and argue that only a limited role was played by public interventions. Moreover, the recent ascendance of international industrial networks, which dominate the sectors in which least developed countries have in the past had considerable success, implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.

Entry into a Foreign Market: Foreign Direct Investment versus Licensing

Review of International Economics, Feb 1, 1996

We compare foreign direct investment (FDI) and technology licensing as two modes of entry into a ... more We compare foreign direct investment (FDI) and technology licensing as two modes of entry into a foreign market. While direct entry via FDI dissipates rcnts in the host country, opportunistic competition from a licensee may erode rcnts in the entrant's other markets. Since FDI increases competition in the host country while licensing stifles it. welfare is highcr under FDI than under licensing.

Trade, Foreign Direct Investment, and International Technology Transfer: A Survey

World Bank policy research working paper, Nov 30, 1999

What role does trade play in international technology transfer? Do technologies introduced by mul... more What role does trade play in international technology transfer? Do technologies introduced by multinational firms diffuse to local firms? What kinds of policies have proved successful in encouraging technology absorption from abroad and why? Using these questions as motivation, this article surveys the recent trade literature on international technology transfer, paying particular attention to the role of foreign direct investment. The literature argues that trade necessarily encourages growth only if knowledge spillovers are international in scope. Empirical evidence on the scope of knowledge spillovers (national versus international) is ambiguous. Several recent empirical plant-level studies have questioned earlier studies that argued that foreign direct investment has a positive impact on the productivity of local firms. Yet at the aggregate level, evidence supports the view that foreign direct investment has a positive effect on economic growth in the host country. Economic growth results from accumulation of factors of production or from improvements in technology or both. To encourage the generation of new knowledge, industrial countries have elaborate systems of intellectual property rights (iprs) in place and conduct the majority of the world's research and development (r&d). Technologies resulting from r&d spread throughout the world via a multitude of channels. On a fundamental level, international trade in technology differs from other indirect channels of international technology transfer, such as trade in goods and international movement of factors of production. This article critically surveys the literature that explores the roles of trade and foreign direct investment (fdi) as channels of international technology transfer. With respect to fdi, a distinction is made between wholly owned subsidiaries of multinational firms and international joint ventures. Furthermore, the role of fdi is contrasted with that of arm's-length channels of technology transfer, such as licensing. Although the literature has done a decent job of outlining the various channels through which international technology transfer occurs, not enough is known, both

Mode of foreign entry, technology transfer, and FDI policy

Journal of Development Economics, Oct 1, 2004

Foreign direct investment (fdi) can take place either through the direct entry of foreign …rms or... more Foreign direct investment (fdi) can take place either through the direct entry of foreign …rms or the acquisition of existing domestic …rms. The preferences of a foreign …rm and the host country government over these two modes of fdi are examined in the presence of costly technology transfer. The trade-o¤ between technology transfer and market competition emerges as a key determinant of preferences. The paper identi…es the circumstances in which the government and foreign …rm's choices diverge, and domestic welfare can be improved by restrictions on fdi which induce the foreign …rm to choose the socially preferred mode of entry.

Product differentiation, process R&D, and the nature of market competition

European Economic Review, 2002

We investigate the relationship between process and product R&D and compare the incentives for bo... more We investigate the relationship between process and product R&D and compare the incentives for both types of R&D under di!erent modes of market competition (Bertrand versus Cournot). It is shown that: (i) process R&D investments increase with the degree of product di!erentiation and "rms invest more in product R&D when they can do process R&D than when they cannot; (ii) Bertrand "rms have a stronger incentive for product R&D whereas Cournot "rms invest more in process R&D; and (iii) cooperation in product R&D promotes both types of R&D relative to competition whereas cooperation in both types of R&D discourages R&D relative to cooperation in just product R&D.

Is There a Case for Industrial Policy? A Critical Survey

World Bank Research Observer, Aug 5, 2006

What are the underlying rationales for industrial policy? Does empirical evidence support the use... more What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? This article addresses these questions through a critical survey of the analytical literature on industrial policy. It also reviews some recent industry successes and argues that public interventions have played only a limited role. Moreover, the recent ascendance and dominance of international production networks in the sectors in which developing countries once had considerable success implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.

International technology transfer and the technology gap

Journal of Development Economics, Apr 1, 1998

We build a quality ladders product cycle model that explores how the quality of Ž. technology tra... more We build a quality ladders product cycle model that explores how the quality of Ž. technology transferred through foreign direct investment FDI is linked to innovation and imitation when the absorptive capacity of LDCs is limited. Successful imitation of low quality levels makes FDI involving high quality levels possible through reduction of the technology gap. A subsidy to imitation or a tax on low quality FDI production encourages imitation relative to innovation, thus releasing the constraint faced by foreign firms seeking to produce in the South. These forces that stimulate high-quality FDI raise Southern welfare through lower prices, faster innovation and higher wages. q 1998 Elsevier Science B.V.

The Regulation of International Trade

Oxford University Press eBooks, Dec 19, 2022

National Treatment at the Wto: The Roles of Product and Country Heterogeneity

World Scientific Studies in International Economics, Sep 19, 2018

This paper analyzes the World Trade Organization's (WTO's) national treatment (NT) clause in a tw... more This paper analyzes the World Trade Organization's (WTO's) national treatment (NT) clause in a two-country model where quality of goods and/or market size are heterogenous across countries. When market size is symmetric across countries, a reciprocal NT agreement (i) benefits the high-quality country, (ii) hurts the low-quality country, and (iii) delivers higher aggregate world welfare. However, such an agreement can arise in equilibrium if the high-quality country's market is relatively bigger and the quality gap between goods is small (i.e., goods are sufficiently alike). The qualitative nature of these results does not change when quality is endogenously determined.