Mehrene Larudee

Mehrene@ukans.edu

phone:785-864-2859

fax: 785-864-5270

In this paper I modify and extend a recent model of technology transfer through FDI in developing countries which focuses on movement of skilled workers among firms. The goal is to find a more realistic model which explains two sets of empirical findings:

(1) studies which find few or no technological spillovers from FDI in several developing countries to locally owned firms in the same sector, and (2) studies which consistently find that multinational subsidiaries pay a wage premium to skilled workers relative to the skilled wage paid by local firms.

The modification and extension of the model do incorporate more realistic features, but yield results which do not correspond much better with observed facts. However, they point the way to further extensions with the potential for better correspondence with the data, and these have been explored in a companion paper.