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Do Local Firms Benefit from Foreign Direct Investment? An Analysis of Spillover Effects in Developing Countries

Gerschewski, Stephan (2013) Do Local Firms Benefit from Foreign Direct Investment? An Analysis of Spillover Effects in Developing Countries. Asian Social Science, 9 (4). pp. 67-76. ISSN 1911-2017. (doi:10.5539/ass.v9n4p67)

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https://doi.org/10.5539/ass.v9n4p67

Abstract

Developing countries are increasingly recipients of foreign direct investment (FDI). In this regard, governments are attempting to attract FDI due to the expected spillover effects, which relate to benefits in terms of increased productivity of local firms and technology diffusion from multinational enterprises (MNEs) to the domestic economy. However, it is generally not clear whether there are positive or negative spillover effects from FDI to local firms in developing economies. The purpose of this paper is to provide a review of the literature on spillover effects and linkages that arise from FDI in developing countries. Our review suggests that there tends to be negative intra-industry productivity spillover effects (i.e., spillovers between MNEs and local firms in the same industry). This may be explained by the fact that MNEs crowd out local competitors that are not able to compete against MNEs, and the concept of “absorptive capacity” which implies that local firms may not be able to assimilate and absorb knowledge of MNEs. However, we find evidence for positive inter-industry spillovers through linkages between MNE affiliates and suppliers in different industry sectors which may be attributed to the benefits for MNEs in transferring knowledge and technology to their local suppliers. The study offers suggestions for future research.

Item Type: Article
DOI/Identification number: 10.5539/ass.v9n4p67
Uncontrolled keywords: foreign direct investment, spillover effect, developing country, linkage, multinational enterprise, productivity
Subjects: H Social Sciences > HF Commerce > HF5351 Business
Divisions: Faculties > Social Sciences > Kent Business School > Marketing
Depositing User: Stephan Gerschewski
Date Deposited: 07 Dec 2019 04:49 UTC
Last Modified: 09 Dec 2019 10:26 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/79205 (The current URI for this page, for reference purposes)
Gerschewski, Stephan: https://orcid.org/0000-0002-4976-1033
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