The choice of licensing versus direct foreign investment in developing countries

For developing, technology-receiving countries, direct foreign investment is always better than licensing in the short run with sectoral immobility of capital. In the long run with perfect mobility of capital between sectors, the welfare rankings of the two scenarios are dependent upon the amount of domestic capital. The likely case is that the developing country would have a smaller amount of domestic capital than foreign investors, and hence licensing could yield higher national welfare. © 1993 Springer-Verlag.