Urenio Watch Watch: Technology Transfer - Learning

FDI and Knowledge Spillovers

AbsorptionImproving the absorptive capacity of regions and organisations is a major mechanism for accelerating innovation, raising productivity, and economic growth. The present World Bank working paper discusses trade flows, foreign direct investment (FDI), research and development (R&D), and labor mobility and training as key processes for knowledge absorption.

Particularly interesting is Chapter 3 on the links among knowledge absorption and spillovers fromFDI. I quote “Empirical studies
generally find strong, robust effects of foreign ownership on the productivity of wholly or partially owned foreign subsidiaries. In other words, firms with some level of foreign ownership are more productive and technology intensive than are purely domestic firms.

What is rarer is evidence of productivity spillovers to indigenous domestic firms. A number of studies have found evidence of such spillovers in industrialized countries, but they have proven harder to find in developing-country contexts. In fact, a number of wellregarded studies have even found evidence of negative TFP spillovers, suggesting that the presence of foreign firms actually triggers a decline in the productive efficiency of local firms.

Studies of the Czech Republic, Bulgaria, Romania, and Poland could not find evidence of positive spillovers to indigenous firms (Djankov and Hoekman 2000; Konings 2000). Javorcik (2004) has suggested that spillovers from FDI will only flow to a particular subset of indigenous firms. She notes that multinationals have little incentive to transfer technology to local rivals, and can often takes steps to limit the extent to which their technology leaks out.However, they do have an incentive to share technology with local suppliers’”and Javorcik finds evidence of inter-industry (or “vertical’) spillovers from foreign firms through supply chain relationships to their local suppliers in Lithuania. Garrick Blalock (2002) finds similar evidence of spillovers through so-called backward linkages in Indonesia.”

The WB working paper: globalization_tech_absorption_FullReport

Source: The World Bank