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Technology Spillovers: A Motive for Foreign Direct Investment?

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Author Info
Leo A. Grünfeld
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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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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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

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  1. Neven, D. & Siotis, G., 1996. "Technology sourcing and FDI in the EC: An empirical evaluation," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 543-560, July. [Downloadable!] (restricted)
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  2. Fosfuri, Andrea & Motta, Massimo, 1999. " Multinationals without Advantages," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(4), pages 617-30, December. [Downloadable!] (restricted)
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  3. Margaret J. Simpson, 1994. "Foreign Control and Norwegian Manufacturing Performance," Discussion Papers 111, Research Department of Statistics Norway.
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Braunerhjelm, Pontus & Svensson, Roger, 1996. "Host Country Characteristics and Agglomeration in Foreign Direct Investment," Applied Economics, Taylor and Francis Journals, vol. 28(7), pages 833-40, July. [Downloadable!] (restricted)
  7. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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