|Department of Economics|
The Impacts of Entry Modes Selection of a Foreign Firm on the Host Country
(Supervisor:A.Suut Doğruel )
ABSTRACTForeign firms may enter international markets via different methods, such as exporting, licensing its technology and foreign direct investment. It is obvious that, different entry modes have various impacts on the economy of host country. R&D level and welfare considerations are two important aspects that should be considered in order to reach policy implications.
This study investigates the effects of different entry modes on the host countrys welfare and technology using a game theoretic model. For each entry modes, separate model is constructed and solved through backward induction. As a result of these analyses, profit levels of firms, welfare of developing country, subsidy level and R&D investment levels in each case are determined. The results show that, in each case subsidy is higher for the high levels of the efficiency of the local firm. In addition to that, since R&D is a costly process, R&D investments found to be high when cost of the production is at lower levels for all cases. Simulations show that welfare of the country is higher at low production cost of local firm relative to high cost case. Finally, analysis of technological spillover in case of foreign direct investment depicts that subsidy level given to R&D efforts and welfare of the country are at higher levels when the rate of technological spillover is high.