Localized spillovers and foreign direct investment: a dynamic analysis

It has been empirically shown that ̄rms invest in foreign countries also with the aim to absorb technological knowledge. However, the recent literature on technological innovation and foreign expansion has not fully taken into account these features of foreign direct investment. Introducing this new element into the analysis implies assuming that multinationals and exporters operate with di®erent degrees of technological spillovers. Our aim is to study how these di®erences in the transmission of knowledge may a®ect the ̄rms' incentive to innovate and their behaviour in an international market, that is their choice between serving foreign markets via exports or foreign investments.