Foreign direct investment industry characteristics and spillovers

2015 ◽  
Vol 8 (1) ◽  
pp. 49-66 ◽  
Author(s):  
Taotao Chen ◽  
Ronald W. McQuaid ◽  
Maktoba Omar
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Manufacturing Industry ◽  
Ordinary Least Squares ◽  
Foreign Firms ◽  
National Bureau ◽  
Special Equipment ◽  
Content Type ◽  
Mechanism Model ◽  
Fdi Spillovers

Purpose – The purpose of this paper is to develop a double mechanism model to separate two foreign direct investment (FDI) intra-industry spillovers mechanisms: spillovers by FDI intensity and by FDI efficiency. This paper seeks to illustrate the potential use of the double mechanism model rather than provide precise estimates of spillovers. The evidence on the links between technology and the nature, size and mechanisms of FDI spillovers effects in economically developing countries is mixed. Design/methodology/approach – A model is developed and tested, in principle. Empirical testing was conducted in two steps. In the first step, the authors examined the effect of each influencing factor to FDI spillovers separately. To complete this step, the authors divided the whole sample industry into sub-groups and tested them with the double-mechanism using ordinary least squares regression. This study applies Chinese National Bureau of Statistics manufacturing industry level data, for the years 2000, 2001 and 2002, including the food industry, beverage industry, textile industry, textiles and garments, chemicals and chemical products industry, overall manufacturing equipment, special equipment, computer and other electronic equipment manufacturing industries. Findings – The analysis suggests significant differences between types of spillovers: export orientation of domestic firms mainly influences FDI spillovers by intensity; the capability gap between local and foreign firms influences spillovers by efficiency; and the growth of local firms influences both types of spillovers. This paper develops existing models of FDI and suggests that disaggregating spillovers types may provide important theoretical and policy insights. Originality/value – This study has found, first, that compared with the classic single mechanism model, the double mechanism model is more appropriate for testing FDI intra-industry spillovers, as it is able to separate spillovers by intensity and spillovers by efficiency, which are shown as two distinct mechanisms for FDI spillovers. This allows a deeper analysis into each mechanism and the identification of relevant influencing factors.

International technology transfer: evidence on foreign direct investment in Albania

2020 ◽  
Vol 47 (2) ◽  
pp. 286-306 ◽  
Author(s):  
Mamica Skenderi Konstandina ◽  
Geoffrey Gatharia Gachino
Keyword(s):  
Foreign Direct Investment ◽  
Technology Transfer ◽  
Financial Management ◽  
Direct Investment ◽  
Manufacturing Industry ◽  
Foreign Firms ◽  
Content Type ◽  
Investment Promotion ◽  
The Government ◽  
Transfer Index

PurposeThe purpose of this paper is to examine the presumed role played by foreign direct investment (FDI) in transferring technology from home country into a host country. This paper uses data from Albanian manufacturing industry; first, to examine whether foreign presence results in technology transfer and, if yes, what type of technology is more prevalent and to what extent? Second, the paper attempts to investigate the purported determinants of technology transfer.Design/methodology/approachThe paper uses two main methodological approaches; first, the technology transfer was determined using an arithmetic index developed using simple arithmetic average. This index is determined using all the industries and taking six key components of technology into consideration. They included: products; production processes; technology and innovation; supplier and customers system; human resource management, training and reporting system; financial management, marketing and organizational structure. Second, assuming a limited dependent relationship between the variables and the technology transfer, a Tobit technique was proposed to examine the significant determinants of technology transfer. Technology transfer was proxied by the technology transfer index developed.FindingsThe results clearly demonstrate that FDI plays an important role in technology transfer and that notwithstanding the industrialization of Albania. As per the technology transfer index developed, product-related technology transfer ranked highest followed by the process-related technology. The Tobit results generated indicated that firm age, performance, absorptive capacity, labor mobility, innovation, demonstration effect and systematic support were all key determinants of technology transfer. Surprisingly, size of the firm did not seem to matter.Research limitations/implicationsThe results have possible managerial and policy ramifications. First, the government should continue to provide basic infrastructure. Second, the government needs to formulate policies focused on human capital accumulation. Third, policies should be focused on firm learning and innovation in order to build technological and absorptive capabilities. Moreover, there should be increased effort to facilitate and encourage R&D. Fourth, the government should coordinate and support the institutions especially those that play a crucial role in industrial investment promotion. Fifth, the government should encourage systemic interactions among different entities. Sixth, since high competition from foreign firms can crowd out domestic investment, strategic measures to regulate such competition should be enacted.Originality/valueThe novelty in this paper is the broad conceptualization of technology transfer to include not only the direct but also the indirect mode of technology transfer, which often takes place in the form of spillovers. The physical technology transfer, as well as, its actual impact in the economy is examined to ascertain that technology transfer indeed takes place. The analytical framework adopted overlaps international business, technology transfer and technological innovation literature strands to examine the holistic process of technology transfer.

Does foreign direct investment spillover total factor productivity growth? A study of Indian drugs and pharmaceutical industry

2017 ◽  
Vol 24 (7) ◽  
pp. 1937-1955 ◽  
Author(s):  
Nitin Arora ◽  
Preeti Lohani
Keyword(s):  
Foreign Direct Investment ◽  
Pharmaceutical Industry ◽  
Total Factor Productivity ◽  
Direct Investment ◽  
Spillover Effect ◽  
Foreign Firms ◽  
Factor Productivity ◽  
Content Type ◽  
Domestic Firms ◽  
Tfp Growth

Purpose Foreign firms have certain advantages which may spillover to domestic firms in the form of improvements in total factor productivity (TFP) growth. The purpose of this paper is to empirically observe the presence of TFP spillovers of foreign direct investment (FDI) to domestic firms through analyzing source of TFP growth in Indian drugs and pharmaceutical industry. Design/methodology/approach This paper examines the sources of TFP spillovers of FDI in Indian drugs and pharmaceutical industry over the period 1999 to 2014. The data of 304 firms has been used for estimation of the growth rates of TFP and its sources under stochastic frontier analyses based Malmquist productivity index framework. For frontier estimation, the Wang and Ho (2010) model has been executed using translog form of production function. Findings The results show that there exists significant TFP spillover effect from the presence of foreign equity in drugs and pharmaceutical industry of India. The results also show that the major source of TFP fluctuations in the said industry is managerial efficiency that has been significantly affected by FDI spillover variables. In sum, the phenomenon of significant Intra-industry (horizontal) efficiency led productivity spillovers of FDI found valid in case of Indian drugs and pharmaceutical industry. Research limitations/implications The number of foreign firms is very less to imitate the significant impact of foreign investment on TFP growth of Indian pharmaceutical industry at aggregated level; and the Wang and Ho (2010) model is failing to capture direct impact of FDI on technological change under Malmquist framework. Practical implications Since, there exists dominance of domestic firms in Indian drugs and pharmaceutical industry, the planners should follow the policy which not only attract FDI but also benefit domestic firms; for example, developing modern infrastructure and institution which will further help domestic firms to absorb spillovers provided by the Multinational Corporations and also accelerate the growth and development of the economy. Social implications In no case, the foreign firms should dominate the market share otherwise the efficiency spillover effect will be negative and the domestic firms will be destroyed under the self-centric approach of foreign firms protected by the recent patent laws. Originality/value The study is a unique attempt to discuss the production structure and sources of TFP spillovers of FDI in Indian drugs and pharmaceutical industry with such a wide coverage of 304 firms over a period of 16 years under Wang and Ho (2010) model’s framework. The existing studies on TFP spillovers are using either a small sample size of firms or based upon traditional techniques of measuring spillover effects.

scholarly journals THE EFFECT OF FOREIGN DIRECT INVESTMENT SPILLOVER ON THE LEVEL OF TECHNICAL EFFICIENCY IN LARGE AND MEDIUM MANUFACTURING INDUSTRY IN EAST JAVA

2020 ◽  
Vol 5 (1) ◽  
pp. 6
Author(s):  
Ahmad Oktabri Widyananda ◽  
Dyah Wulan Sari
Keyword(s):  
Foreign Direct Investment ◽  
Technical Efficiency ◽  
Direct Investment ◽  
Manufacturing Industry ◽  
Positive Impact ◽  
Stochastic Frontier ◽  
Positive Influence ◽  
Foreign Firms ◽  
Stochastic Frontier Approach ◽  
Firm Level

Foreign Direct Investment (FDI) takes an important role in the development process, especially in developing countries. The purpose of this study is to examine and analyze FDI spillover on the level of technical efficiency in the large and medium manufacturing industry in East Java. This study uses a time-varying stochastic frontier approach for firm-level panel data of the East Java manufacturing industry. The results show that all factors in this study affect the level of technical efficiency of large and medium industries in East Java. Variable foreign share, FDI horizontal spillover, and firm size have a positive influence on the technical efficiency of the industry. Whereas the variable FDI backward spillover, FDI forward spillover and the level of market concentration negatively affect the level of technical efficiency of the industry. Finally, it’s needed to build synergies and sustainable relationships between products produced by domestic and foreign firms. Thus, the presence of foreign firms in East Java could have a positive impact on improving the technical efficiency of the domestic industry both at the upstream and downstream levels. Keywords: Foreign Direct Investment Spillover, Technical Efficiency, East Java IndustryJEL Classification: F21, L60, D24

scholarly journals The impact of financial sector reforms on foreign direct investment in an emerging economy: empirical evidence from Ghana

2020 ◽  
Vol 2 (4) ◽  
pp. 271-284
Author(s):  
Kofi Kamasa ◽  
Isaac Mochiah ◽  
Andrews Kingsley Doku ◽  
Priscilla Forson
Keyword(s):  
Foreign Direct Investment ◽  
Empirical Evidence ◽  
Direct Investment ◽  
Least Squares Method ◽  
Financial Sector ◽  
Ordinary Least Squares ◽  
Sector Reform ◽  
Content Type ◽  
Financial Sector Reform ◽  
The Impact

Purpose This paper aims to empirically investigate the impact that financial sector reforms have on foreign direct investment (FDI) in Ghana. Design/methodology/approach Composite financial sector reform index was constructed, which was made up of various forms of reform policies that were implemented from 1987 to 2016. The auto regressive distributed lag bounds test was used to establish cointegration between variables. Having controlled for other covariates that affect FDI such as trade openness, exchange rate, gross domestic product per capita, inflation and by using the fully modified ordinary least squares method, the estimations are robust as it uses a semi-parametric correction to avoid for any possible issues of endogeneity and serial correlation. Findings Results from the paper reveal that financial sector reform deepening boost FDI with a 2.167% increase in FDI following from a unit percentage improvement of the financial sector reforms. Considering the various categories of reforms, the results reveal that competitive reforms have the highest impact on FDI followed by privatization reforms with positive and significant elasticity coefficients of 2.174% and 0.726%, respectively. Behavioral reforms revealed a positive effect on FDI, albeit insignificant. Originality/value The paper contributes to policy by providing empirical evidence on the effect of financial sector reform on FDI inflows in Ghana. As far as the review of literature is concerned, this paper provides the foremost empirical evidence on the subject with sole emphasis on Ghana. Thus, this paper suggests the deepening of the financial sector reforms, improving competition and maintaining macroeconomic stability.

Foreign Direct Investment and Technology Spillovers in the Turkish Manufacturing Industry

2013 ◽  
pp. 30-51 ◽  
Author(s):  
Alper Sönmez ◽  
Mehmet Teoman Pamukçu
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Manufacturing Industry ◽  
Foreign Ownership ◽  
Output Growth ◽  
Foreign Firms ◽  
Technology Spillovers ◽  
Firm Level ◽  
Definition Of ◽  
Local Firms

Technology spillovers from foreign to local firms in emerging economies are considered to be the most important channel through which Foreign Direct Investment (FDI) influences the host economy. Empirical evidence about the existence, magnitude, and direction of FDI-related spillovers in these countries is contradictory, pointing to the necessity of conducting more econometric studies using firm-level data. The authors conduct an econometric analysis to assess the impact of FDI-related horizontal technology spillovers on output growth of local firms in the Turkish manufacturing industry over 2003-2006. When a broad definition of foreign ownership is adopted, their findings suggest that horizontal spillovers occur from foreign to local firms in the sector of activity. Export-oriented firms do not benefit from these spillovers in contrast to firms producing mainly for the local market. However, when foreign ownership is defined according to whether the minority or majority of capital is detained by the foreign partner, horizontal spillovers seem to originate from foreign firms with majority or full foreign ownership, while no such effect is associated with minority-owned foreign firms.

Factors influencing foreign direct investment in South Asian economies

2017 ◽  
Vol 6 (1) ◽  
pp. 8-37 ◽  
Author(s):  
Bishnu Kumar Adhikary
Keyword(s):  
Foreign Direct Investment ◽  
Least Squares ◽  
South Asian ◽  
Financial Stability ◽  
Direct Investment ◽  
Ordinary Least Squares ◽  
Estimation Methods ◽  
Market Size ◽  
Content Type ◽  
Asian Economies

Purpose The purpose of this paper is to investigate the macroeconomic determinants of foreign direct investment (FDI) for the top five South Asian economies, namely, Bangladesh, India, Pakistan, Sri Lanka, and Nepal, and to examine whether these factors are the same for each. Design/methodology/approach This study employs fully modified ordinary least squares and two-stage least squares estimation methods. Findings This study shows that South Asian economies have a number of FDI determinants in common. For example, market size and human capital are the two most common factors attracting FDI in each country (except for Nepal, which revealed a negative correlation between FDI and market size). Other factors, such as infrastructure, domestic investment, lending rates, exchange rates, inflation, financial stability/crisis, and stock turnover entered into regression with both positive and negative signs, thereby indicating that the underlying theories on FDI do not provide a clear prediction of the direction of the effect of a particular variable on FDI. Research limitations/implications This paper studied the effects of demand-side factors on FDI. A comparative study of the supply-side factors may add further knowledge. Practical implications This paper provides evidence to show that the determinants of FDI are indeed country-specific. Thus, to design a suitable FDI policy, it would not be wise to solely rely on other economies’ FDI experiences. Originality/value This paper provides updated evidence on factors that are essential to promoting or deterring FDI in South Asian economies.

Foreign direct investment and institutional quality: empirical evidence from South America

2019 ◽  
Vol 35 (2) ◽  
pp. 66-78 ◽  
Author(s):  
Victor Owusu-Nantwi
Keyword(s):  
Foreign Direct Investment ◽  
South America ◽  
Least Squares ◽  
Direct Investment ◽  
Institutional Quality ◽  
Ordinary Least Squares ◽  
Public Institution ◽  
Single Measure ◽  
Content Type ◽  
Domestic Capital

Purpose The purpose of this paper is to investigate the effect of institutional quality on foreign direct investment (FDI) flows in South America. Design/methodology/approach The study uses two-stage least squares (2SLS) and fixed effect ordinary least squares regression analyses to examine the relationship between institutional quality and FDI in South America. Findings The study finds a significant positive relationship between institutional quality index and FDI. This implies that improvements in the institutional quality relate to increases in the flow of FDI to South America. Domestic capital, GDP per capita growth, and trade positively relate to FDI. However, the coefficient of trade is not significant. This implies that increases in these variables relate to increases in FDI flows to South America. Practical implications The study recommends that quality of institutions matter to the flow of FDI and therefore, efficient institutional reforms should be a priority for policymakers as this creates a conducive investment environment to attract FDI in South America. Further, policies that are focused on promoting competition, open market, and effective non-corrupt public institution as well as open and transparent legal and regulatory regimes, and effective delivery of government services should be the priority of policymakers in South America (Mishra and Daly, 2007). Originality/value The study uses a single measure of institutional quality based on a broad set of institutional indicators. This broad measure of institutional quality differs from the available studies that mainly focused on single aspects of institutional quality, that is, either corruption, governance, or political risk.

FDI and Spillovers in India: Any Policy Lessons from Existing Studies?

2020 ◽  
Vol 68 (2) ◽  
pp. 269-280
Author(s):  
Subash Sasidharan
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Foreign Firms ◽  
Technology Spillovers ◽  
Policy Changes ◽  
Firm Level ◽  
Policy Makers ◽  
The Past ◽  
Fdi Spillovers ◽  
Extensive Body

During the past three decades, numerous policy changes were made by the policy makers to attract foreign direct investment (FDI) in India. An extensive body of studies using rich firm level panel data have analyzed how foreign firms presence affect the productivity/technology spillovers to domestic firms in India. These studies using recent methodological advancements distinguish between horizontal and vertical spillovers. Empirical analyses of productivity/technology spillovers from foreign firms offer inconclusive results with early studies reporting neutral and negative FDI spillovers, while more recent studies consistently providing evidence of positive vertical spillovers. Therefore, the main contribution of this paper is to review the literature on FDI spillovers in India and explore whether there are any policy lessons from the findings of these firm level studies.

scholarly journals Technology-sourcing investment abroad as an enhancer of Chinese MNEs’ innovative capabilities

2015 ◽  
Vol 10 (2) ◽  
pp. 243-271 ◽  
Author(s):  
Philippe Gugler ◽  
Laura Vanoli
Keyword(s):  
Foreign Direct Investment ◽  
Citation Analysis ◽  
Direct Investment ◽  
Multinational Enterprises ◽  
Knowledge Diffusion ◽  
Technological Capabilities ◽  
Content Type ◽  
Chinese Mnes ◽  
Firm Knowledge ◽  
Innovative Capabilities

Purpose – The purpose of this paper is to focus on Chinese firms’ innovation processes that are induced by foreign direct investment abroad. The study uses a patent and citation analysis to examine the extent to which investments abroad contribute to enhancing these firms’ innovative capabilities. More specifically, this study focusses on the role of foreign location competitiveness as an asset to provide technological capabilities to Chinese affiliates. Design/methodology/approach – Patents are good indicators of firms’ innovative capabilities. Moreover, patents allow to track the inter-firm knowledge transfer through the citations of patents on which they are based. The authors use an OECD patent database called “OECD REGPAT July 2013” that compiles patents registered with the European Patent Office (EPO) over the period from 1986 to 2013. The authors focus the analysis on patents registered by Chinese multinational enterprises’ (MNEs) based in Europe because the authors assume inter alia that innovations patented by Chinese affiliates in Europe are registered with the EPO. The sample comprises 3,010 patents involving 5,749 citations that the authors have individually examined. Findings – The findings suggest that Chinese MNEs ability to generate innovation based on their own knowledge is low, with a self-citation rate of approximately 4 percent. Patents by Chinese MNEs are largely based on foreign patents, especially from developed economies (at least 90 percent). The citation analysis also suggests that 39.2 percent of citations represent domestic firms in the local recipient country. This subgroup of citations is categorized as follows: 1.04 percent are M&A linkages, 13.8 percent are cluster linkages, and 24.36 percent are localization linkages. The remaining 60.8 percent of the total sample demonstrates that firms do not necessarily need to be collocated in foreign locations with domestic firms to exchange assets. Research limitations/implications – Patent and citation analysis considers only a part of the inter-firm knowledge diffusion. Some innovations are not patented and tacit knowledge diffusion is not observable. Moreover, the analysis focusses only on Chinese outward foreign direct investment to Europe, but a large part of knowledge is accumulated in China thanks to inward foreign direct investment. Originality/value – Many scholars have scrutinized emerging markets multinational enterprises’ strategic asset-seeking investments abroad that are designed to upgrade the companies’ technological capabilities (Cui and Jiang, 2009; Zhang and Filippov, 2009; Huang and Wang, 2013; Amighini et al., 2014; De Beule et al., 2014; Nicolas, 2014). However, few studies analyze the results of these strategies in terms of innovation output.

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