Finance constraints and technology spillovers from foreign to domestic firms

Scholars have suggested that externalities such as technology spillovers to domestic firms from the entry and presence of foreign firms – i.e., Foreign Direct Investment (FDI) spillovers – arise only when domestic firms possess adequate absorptive capacity. But they have also maintained a predominantly technological focus in their conceptualization of absorptive capacity, treating it mostly as a function of domestic firms' technological investments. Yet, several anecdotes point to finance constraints being equally important hurdles to absorbing technology. Given the comparatively scant attention to finance constraints in the FDI spillover literature, we present theoretical arguments and a counterfactual simulation for how finance constraints influence firms' realization of FDI spillovers. In the process, we identify two mechanisms underlying why firms facing high finance constraints experience lower FDI spillovers. (125 words).     

R&D and foreign direct investment with asymmetric spillovers

This paper analyzes how firms’ R&D investment decisions are affected by asymmetries in knowledge transmission, considering different sources of asymmetry such as unequal know-how management capabilities and spillovers localization within an international oligopoly. We show that a better ability to manage knowledge flows incentivizes the firm to invest more in R&D. By introducing geographically bounded spillovers, we also find that one-way foreign direct investment (FDI) stimulates the multinational enterprise to raise its own R&D and that an FDI equilibrium is more likely to occur. Finally, spillovers localization leading to two-way FDI is welfare improving when compared with non-localized spillovers.     

Do domestic firms learn to export from multinationals?

Attracting inward investment is a major preoccupation of policymakers worldwide, and a wide range of instruments, including direct subventions, are deployed to attract multinational enterprises (MNEs). Intervention is predicated on the assumption that there are direct productivity spillovers associated with the presence of MNEs and the policy of attracting them is targeted at capturing these externalities. Yet robust evidence on direct spillovers is hard to find. An underexplored indirect channel for productivity spillovers is via exports. Exporting firms are more productive than nonexporting firms. Thus, if the presence of MNEs results in more indigenous firms exporting, an indirect productivity spillover will result. In this paper, we identify possible transmission mechanisms for export spillovers and test for their existence on a large panel of firms in the UK. Our results confirm positive spillover effects from MNEs on the decision to export of UK-owned firms as well as on their export propensity.     

Multinational enterprises and technological spillovers: An evolutionary model

This paper analyses the determinants of the impact of foreign multinational enterprises on the technological development of domestic firms. It argues that the consequences of the foreign presence change according to market and technological conditions. An evolutionary model of technological competition between foreign and domestic firms is developed which is able to generate both vicious and virtuous circles of development in locations affected by foreign MNE activities. Theoretical analysis is tested against the empirical evidence for the UK economy (1983–1989).     

Foreign Plants and Industry Productivity: Evidence from Chile

This paper presents new evidence on foreign plants and their effects on a host industry. I test the predictions of a Melitz‐type model using a panel of domestic and foreign plants in the Chilean manufacturing sector. Foreign ownership is a strong predictor of plant productivity and size advantages. Moreover, productivity gains for a domestic incumbent are positively associated with foreign plants' presence in the same industry and region. I also find a positive correlation between foreign entry and exit of less productive domestic plants, but inconclusive evidence on the effects on productivity of new domestic plants.     

Technology transfers,foreign investment and productivity spillovers

This paper explores the relationship between foreign direct investment (FDI) and the productivity of host country domestic firms. We rely on a specially designed survey of over 4000 manufacturing firms in Vietnam, and separate out productivity gains along the supply chain (obtained through direct transfers of knowledge/technology between linked firms) from productivity effects through indirect FDI spillovers. In addition to identifying indirect vertical productivity spillovers from FDI, our results show that there are productivity gains associated with direct linkages between foreign-owned and domestic firms along the supply chain not captured by commonly used measures of spillovers. This includes evidence of productivity gains through forward linkages for domestic firms which receive inputs from foreign-owned firms.     

The importance of clusters for spillovers from foreign direct investment and technology sourcing

This paper examines the link between cluster development andinward foreign direct investment. The conventional policy approachhas been to assume that inward foreign direct investment (FDI)can stimulate significant clustering activity, thus generatingsignificant spillovers. This paper, however, questions thisand shows that, while clusters can generate significant productivityspillovers from FDI, this only occurs in pre-existing clusters.Further, the paper demonstrates that foreign-owned firms thatenter clusters also appropriate spillovers when domestic firmsundertake investment, raising the possibility that clustersare important locations for so called technology, or knowledgesourcing activities by MNEs.     

The regional distribution of foreign investment in Russia

This article conducts a plant‐level study of the factors affecting foreign direct investment (FDI) inflow to a large opening economy endowed with specific factor advantages. We conclude that the distribution of FDI in Russian regions depends on market access and can be most notably described by the knowledge‐capital framework. Factor endowments built by natural resources are more successful in explaining the location decisions of export–platform affiliates. The impact of natural resources depends on how the availability of these resources is measured. The results reject the crowding out effects of resource FDI and prove co‐location mode, when service investments are attracted to resource‐rich regions. Labour cost advantages better explain the preferences of non‐trading service affiliates.     

On the genesis of multinational foreign affiliate networks

Multinational enterprises (MNEs) develop their networks of foreign affiliates gradually over time. Instead of exploring all profitable opportunities immediately, they first establish themselves in their home countries and then enter new markets stepwise. We argue that this behavior is driven by uncertainty concerning a firm's success in new markets. After entry, the firm collects information which is used to update its beliefs about its performance in a market. As conditions in different markets are correlated, the information gathered in one of them can also be used to update beliefs elsewhere – with the degree of correlation depending on issues such as the geographical or cultural distance between markets. This correlated learning may render it optimal to enter markets sequentially – investment in market A is only followed by entry in market B if the firm was sufficiently successful in A. The prediction that firms start their expansion in markets that are closer to their home base and then proceed step by step is supported by our empirical analysis, which features the universe of foreign affiliates held by German multinationals. Based on a rich set of benchmark estimates and sensitivity checks, we identify correlated learning across markets beyond alternative explanations as a key driver of gradualism in the genesis of MNEs' foreign affiliate networks.     

Threshold effect of international technology spillovers on China's regional economic growth

ABSTRACT

This study uses China's provincial panel data for 2003–2016 to estimate the turning point of technology spillovers promoting economic growth in the coastal and inland areas. The results show that the turning point in coastal areas is significantly higher than that in inland areas. However, improved absorptive capacity as a result of regional disparity increases the threshold of technology spillovers from promotion to suppression in inland areas but decreases it in coastal areas. Then, this study further tests the threshold characteristics of absorptive capacity factors influencing international technology spillovers using a double-threshold regression model and estimates the threshold values of both forward and reverse spillovers from the viewpoint of knowledge context, economic development, opening degree and human resources infrastructure. In conclusion, the effect of absorptive capacity factors on international spillovers is nonlinear, that is, when absorptive capacity factors are between the two threshold values, technology spillovers are maximised.     

The spillover effects of United States foreign trade zones

This article empirically tests the geographic and economic spillover effects of foreign trade zones (FTZs) in the United States by utilizing propensity score matching and the geographic rules of the programme. While these FTZ sites are designed to support manufacturing, we find that ZIP codes that receive FTZ sites experience growth in new and existing non-manufacturing establishments. Our results also show that FTZs spillover into nearby ZIP codes. We find that ZIP codes that border FTZ ZIP codes also experience positive effects on non-manufacturing establishments and these spillovers are strongest within a 5-mile radius of an FTZ.     

Microeconomic consequences and macroeconomic causes of foreign direct investment in southern African economies

The authors use a new data set on firms in 13 countries of the Southern African Development Community (SADC) and comparators from other regions to identify the benefits and determinants of FDI in this region. Foreign Direct Investment (FDI) has facilitated local development in the SADC. Foreign-owned firms perform better than domestic firms, are larger, and locate in richer and better-governed countries and in countries with more competitive financial intermediaries. They are also more likely to export than domestic firms and evidence suggests that they might have positive spillover effects on domestic firms. Based on a standard empirical model, the SADC is attracting the inward FDI per capita that the region's level of income would predict. But this means that there are less capital inflows per capita to the region than there are to wealthier parts of the developing world. Moreover, the SADC is attracting less FDI than comparators for reasons that are possibly more fundamental than current income, namely, countries’ past growth record, demographic structure and the quality of physical infrastructure. Interestingly, inward FDI is less sensitive to variation in income within the SADC than in other parts of the world, but is more responsive to changes in country's openness to trade.     

Multinational firms,acquisitions and job tasks

We revisit the question how inward FDI and multinational ownership affect relative labor demand. Motivated by the recent literature that distinguish between skills and tasks, we argue that the impact of multinational and foreign ownership on the demand for labor is better captured by focusing on job tasks rather than education. We use Swedish matched employer–employee data and find that changes of local firms to both foreign and Swedish multinationals increase the relative demand for non-routine and interactive job tasks in the targeted local firms. Hence, in a high-income country, both inward and outward FDI have a task upgrading impact on local firms. The effect is primarily driven by wage effects leading to increased wage dispersion for workers with different non-routine and interactive task intensity. We also show that the effect is not the same as skill upgrading since dividing employees by educational attainment does not capture changes in the relative labor demand. Hence, our results suggest a new aspect of the labor market consequences of FDI.     

Local export spillovers in France

This paper investigates the presence of local export spillovers on both the extensive (the decision to start exporting) and the intensive (the export volume) margins of trade, using data on French individual export flows, at the product-level and by destination country, between 1998 and 2003. We investigate whether the individual decision to start exporting and exported volume are influenced by the presence of nearby product and/or destination specific exporters, using a gravity-type equation estimated at the firm-level. Spillovers are considered at a fine geographical level corresponding to employment areas (348 in France). We control for the new economic geography-type selection of firms into agglomerated areas, and for the local price effects of firms agglomeration. Results show evidence of the presence of export spillovers on the export decision but not on the exported volume. We interpret this as a first evidence of export spillovers acting through the fixed rather than the variable cost. Spillovers on the decision to start exporting are stronger when specific, by product and destination, and are not significant when considered on all products-all destinations. Moreover, export spillovers exhibit a spatial decay within France: the effect of other exporting firms on the export decision is stronger within employment areas and declines with distance.     

An empirical study on FDI international knowledge spillovers and regional economic development in China

This article has constructed a framework to analyze the relationship between national innovation investments, international knowledge spillover due to FDI and regional technological progress. We use the panel data sample in 1992–2006 from China’s 29 provinces (municipalities or autonomous regions) to test the impact of China’s regional R&;D investments, international knowledge spillovers of FDI on its regional technological progress. It reveals that the local investments in science and technology are the most important factors to promote technological progress; for the structure and quality of China’s current FDI, the knowledge spillover effects from FDI, especially through the FDI enterprises’ manufacturing activities, are not obvious; the local gains in its technology development from FDI depends on its economic and technological level. Based on the above conclusions we give the corresponding policy recommendations for China’s FDI policy and regional economic development.     

The cul-de-sac of foreign industrial investments to Russia

Abstract

The aim of this article is to determine the rationale for the ‘irrational’ investment behaviour of multinational corporations (MNCs) in Russia. During the on-going recession in a number of major sectors, MNCs have undertaken only a very limited number of divestments and, instead, have commissioned a record number of new manufacturing facilities (by opening new plants and expanding the capacities of existing plants). To explain this phenomenon, we first provide an overview of existing theoretical and empirical studies on investments in difficult locations and divestments of foreign subsidiaries, and identify the major weaknesses of the prevailing approaches and underlying assumptions of such studies. Next, we present a detailed picture of both industrial investments and divestments in Russia from January 2015 to March 2017. Finally, we indicate how a combination of systemic and contingent factors (pressure from the host country’s government, subsidiaries’ orientation towards the host country’s markets, and the absence of potential local and international acquirers for existing Russian manufacturing facilities of Western MNCs) has created ‘cul-de-sac’ conditions for foreign-owned industrial assets in Russia.     

Barriers to knowledge spillovers and regional convergence in an evolutionary model

This paper will present a multi-region/multi-country model in which inter-regional knowledge spillovers determine the growth of regions. Key parameters in the model are the learning capability of a region and the rate of knowledge generation (R&D). The intensity of spillovers depends on geographical distance between regions. The model is investigated by means of simulation techniques. What results is a core-periphery situation, the exact form of which depends on the assumed spatial structure. The impact of economic integration is investigated by introducing barriers-to-knowledge-spillovers in the model in the form of borders between countries. Contrary to the popular belief and some economic theories, we find that removing such spillover barriers may result in larger disparity of income levels between regions.     

Ownership advantages,home production,foreign production and exports of direct investing firms—Some evidence from austrian firms

This paper formulates a simple model of a monopolistic, horizontally integrated, multinational firm with multiplant economies of scale generated by inputs with public good characteristics. The econometric analysis of the model conducted with a sample of Austrian firms points to a substitutive relationship of foreign production and home production with foreign production significantly lowering exports. The estimation results, however, indicate in accordance with the economic model that multiplant economies of scales significantly lower the magnitude of substitution. Holding exports constant a complementary relationship between home production and foreign production would appear indicating that substitution would be much higher in the absence of multiplant economies of scale.     

FDI对区域经济增长的贡献度研究——来自1999-2007年我国中部六省的经验数据

国外直接投资(即FDI)对发展中国家经济增长的贡献度问题一直是人们研究的热点问题。文章基于1999-2007年中部六省的数据,研究FDI与中部地区经济增长之间的关系,得出FDI对中部地区经济增长的直接促进作用不是很大,但是由FDI所带来的技术溢出效应对经济增长起反向的拉动作用。鉴于此,文章对中部地区在引进外资方面提出相关建议,即在重视FDI的量的同时更应该注重其质的提高,注重FDI对当地企业的技术溢出效应。     

Knowledge spillovers in biotechnology: sources and incentives

This paper sheds light on the questions, Why does knowledge spill over? and How does knowledge spill over? The answer to these questions we suggest lies in the incentives confronting scientists to appropriate the expected value of their knowledge considered in the context of their path-dependent career trajectories. In particular, we focus on the ability of scientists to appropriate the value of knowledge embedded in their human capital along with the incentive structure influencing if and how scientists choose to commercialize their knowledge. We conclude that the spillover of knowledge from the source creating it, such as a university, research institute, or industrial corporation, to a new-firm startup facilitates the appropriation of knowledge for the individual scientist(s) but not necessarily for the organization creating that new knowledge in the first place.