THE CHOICE OF LICENSING VERSUS DIRECT FOREIGN-INVESTMENT IN DEVELOPING-COUNTRIES

For developing, technology-receiving countries, direct foreign investm ent is always better than licensing in the short run with sectoral imm obility of capital. In the long run with perfect mobility of capital b etween sectors, the welfare rankings of the two scenarios are dependen t upon the amount of domestic capital. The likely case is that the dev eloping country would have a smaller amount of domestic capital than f oreign investors, and hence licensing could yield higher national welf are.