North-South FDI and directed technical change*

- We explore how patterns of North-South FDI affects the bias of technology and economic growth.
- An intra-firm bargaining game is incorporated into the framework of directed technical change.
- The monotonicity of the relative skill-augmenting technology with respect to the North-South relative bargaining power hinges on the substitutability of intermediates.
- There exists an inverse U-shaped relationship between the North-South relative profit share and the host country's steady-state economic growth rate.

This paper presents a model to explore how patterns of North-South FDI affect the bias of technology and the host country's economic growth. We develop our growth model in a unified framework of directed technical change and cooperative game. The host country's economic growth is embedded in a duopolistic international joint venture. Our model illustrates that: (i) the relative skill-augmenting technology is decreasing in the North-South relative bargaining power if technical and nontechnical intermediates are substitutes, but increasing if they are complements; (ii) there exists an inverse U-shaped relationship between the North-South relative profit share and the host country's steady-state economic growth rate.