MULTINATIONAL CORPORATIONS AND DEVELOPING COUNTRIES: ENTRY MODE, TECHNOLOGY TRANSFER AND PERFORMANCE REQUIREMENTS

Abstract

This dissertation develops and tests a theoretical model of multinational corporation technology transfer to affiliates in developing countries. A bi-lateral moral hazard model is used to analyze a multinational corporation's decision to enter a new market via a wholly owned subsidiary, a joint equity venture or an arm's length contract. The model demonstrates that governments can enact Pareto improving policies that increase technology transfer from foreign investors. However, frequently employed and recommended interventions such as export promotion policies and local content regulation lower joint venture profits and decrease the incentive to transfer technology. Empirical testing is conducted using a simultaneous equation limited dependent variable model. The results indicate that the determination of foreign ownership shares at the plant-level is consistent with the bi-lateral moral hazard model. Further, there is little if any indication that ownership is shared in international joint ventures as a means of sharing risk.