This paper analyses the impact of foreign direct investment (FDI) on the development of local firms. We focus on two likely of FDI: a competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry. Using a simple...

This paper analyses the impact of foreign direct investment (FDI) on the development of local firms. We focus on two likely effects of FDI: a competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry. Using a simple...

This paper investigates Samuelson's (JEP, 2004) argument that technical progress of the trade partner may hurt the home country. We illustrate this prospect in a simple Ricardian model for sitations with outward knowledge spillovers. Within this framework Samuelson's "Act II" effects may occur....