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Technology Spillovers: A Motive for Foreign Direct Investment?

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  • Leo A. Grünfeld
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    Abstract

    This paper explores the relationship between the R&D activity in a country and the inflow of foreign capital through foreign direct investment and foreign ownership. The idea that firms invest abroad in order to more easily absorb the knowledge and technology of foreign firms is tested empirically using a unique firm level data set covering foreign ownership and R&D in all Norwegian manufacturing firms over the period 1990 to 1996. The study gives no clear support for such a motive behind foreign ownership. On the contrary, the econometric study indicates that foreign investors predominantly try to exploit their technological advantages in the Norwegian market. The results also show that the presence of foreign ownership is more volatile in highly R&D intensive firms. We claim that this is due to the fact that large R&D investment often result in large losses as well as gains, which again attracts or repels foreign owner interests.

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    File URL: http://www.nopecjournal.org/NOPEC_2001_a06.pdf
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    Bibliographic Info

    Article provided by Nordic Journal of Political Economy in its journal Nordic Journal of Political Economy.

    Volume (Year): 27 (2001)
    Issue (Month): ()
    Pages: 97-120

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    Handle: RePEc:noj:journl:v:27:y:2001:p:97-120

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    1. Damien NEVEN & George SIOTIS, 1995. "Technology Sourcing and FDI in the EC : An Empirical Evaluation," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9508, Université de Lausanne, Faculté des HEC, DEEP.
    2. De Bondt, Raymond & Sleuwaegen, Leo & Veugelers, Reinhilde, 1988. "Innovative strategic groups in multinational industries," European Economic Review, Elsevier, vol. 32(4), pages 905-925, April.
    3. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December.
    4. Fosfuri, Andrea & Motta, Massimo, 1999. " Multinationals without Advantages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 617-30, December.
    5. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April.
    6. Petit, Maria-Luisa & Sanna-Randaccio, Francesca, 2000. "Endogenous R&D and foreign direct investment in international oligopolies," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 339-367, February.
    7. Adam B. Jaffe & Manuel Trajtenberg, 1996. "Flows of Knowledge from Universities and Federal Labs: Modeling the Flowof Patent Citations Over Time and Across Institutional and Geographic Boundari," NBER Working Papers 5712, National Bureau of Economic Research, Inc.
    8. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, vol. 43(4-6), pages 925-934, April.
    9. Margaret J. Simpson, 1994. "Foreign Control and Norwegian Manufacturing Performance," Discussion Papers 111, Research Department of Statistics Norway.
    10. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
    11. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November.
    12. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1988. "Interindustry R&D Spillovers, Rates Of Return, and Production In High-Tech Industries," NBER Working Papers 2554, National Bureau of Economic Research, Inc.
    13. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    14. Kogut, Bruce & Chang, Sea Jin, 1991. "Technological Capabilities and Japanese Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 401-13, August.
    15. Jan Fagerberg, 1999. "The Economic Challenge for Europe: Adapting to Innovation-Based Growth," Working Papers 2, Centre for Technology, Innovation and Culture, University of Oslo.
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