I. Freight yards, 516 — II. Output and employment decisions, 517. — III. Switching output, 518. — IV. Delivery output, 523. — V. Aversion functions, 526. — VI. Costs and the complete model, 528. — VII. Tests and prediction, 529. — VIII. Summary and conclusions, 535.

Although economists and policy makers have devoted considerable attention to the transfer of technology by U. S.-based multinational firms to their overseas subsidiaries, very little is known about the nature of the technology that is being transferred overseas in this way, the extent to which it leaks out to non-U. S. competitors, the size of the benefits it confers on the host (and other non-U. S.) countries, and the sorts of non-U. S. firms that receive the largest benefits of this sort. This paper presents findings that shed new light on each of these topics.

In nursing this essay through several drafts, I have benefited greatly from suggestions by Edward Denison, Robert Evenson, Zvi Griliches, Richard Levin, John Kendrick, Edwin Mansfield, and Richard Murnane. Moses Abramovitz has been a source ofencouragement and good, substantive editorial advice, for which I am most grateful. The heterodox views are my own, although I share many of them with Sidney Winter.

This is one of the first empirical studies of the relationship between a developing country's system of intellectual property protection and the volume and composition of U.S. foreign direct investment in that country. Based on data obtained from almost one hundred U.S. firms regarding their perceptions of how weak or strong such protection is in various countries, the authors' results are consistent with the view that a country's system of intellectual property protection influences the volume and composition of U.S. foreign direct investment. Copyright 1996 by MIT Press.