In this paper, we analyze optimal foreign direct investment of a firm which

operates in a duopolistic market. We characterize a technology spillover threshold

and show that for an intensity of spillovers below this threshold, there is a unique

locally asymptotic stable steady state with a positive capital stock in the developing

country. Furthermore, we characterize how optimal foreign investment patterns

and the investor’s value function depend on the level of technology transferred

and characterize the optimal level to be used for the foreign direct investment.