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Role of Technological Capabilities in Enhancing FDI Flows in Developing Asia-Pacific Economies

Role of technology

Developing countries look forward to foreign direct investment (FDI) as a stable source of non-debt creating capital. FDI also offers these economies access to advanced technology and global marketing networks. Similarly, foreign firms investing in developing country markets look for some conditions to be met in host countries, which allow them to produce more efficiently through better exploitation of their typical intangible assets, like superior patented technology, management and marketing skills (Lall and Streeten, 1977; Soci, 2002). Otherwise, foreign firms have the option of serving new markets through either exports or arm’s-length arrangements like licensing. Of course, success in capturing new markets through exports depends heavily on barriers to trade, while licensing, particularly in products involving advanced know-how, needs to overcome critical problems arising from informational asymmetry between foreign sellers and local franchisees. Nevertheless, foreign firms commit to overseas investment by ‘inter nalizing’ operations once they find it cheaper to produce abroad (Buckley and Casson, 1976), given some intrinsic features of developing host countries. These features, as explained later, determine the capabilities of individual countries for attracting FDI.

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