In this paper, we analyze optimal foreign direct investment of a firm which operates in a duopolistic market. We characterize a technology spillover threshold and show that for an intensity of spillovers below this threshold, there is a unique locally asymptotic stable steady state with a positive capital stock in the developing country. Furthermore, we characterize how optimal foreign investment patterns and the investors value function depend on the level of technology transferred and characterize the optimal level to be used for the foreign direct investment.
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