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Foreign direct investment and host country productivity: the American automotive component industry in the 1980s

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  • Wilbur Chung

    (The Wharton School, University of Pennsylvania, Philadelphia, PA, USA)

  • W Mitchell

    (The Fuqua School of Business, Duke University, Durham, NC, USA)

  • B Yeung

    (Stern School of Business, New York University, USA)

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    Abstract

    Although several studies have shown that inward foreign direct investment (FDI) often leads to greater host country productivity, researchers have yet to determine the relative importance of direct technology transfer and competitive pressure. To assess the relative importance of the two channels, we examine the US auto-component industry between 1979 and 1991. During this period, Japanese automobile assemblers began to produce vehicles in North America, and began to purchase inputs from US auto-component manufacturers. Those US manufacturers that sold components to Japanese transplants would be the direct recipients of any technologies transferred from the Japanese. Although we find that the direct investment by Japanese assemblers was associated with overall productivity improvement in the US auto-component industry, we find little evidence of direct technology transfer. The productivity growth of US suppliers affiliated with Japanese assemblers was no greater than that of other, non-affiliated US suppliers. Further, we find that the Japanese assemblers tended to purchase components from less productive US suppliers and, moreover, that low-productivity suppliers that sold goods to Japanese assemblers had a higher survival rate than low-productivity suppliers that did not sell to Japanese firms. The results suggest that increased competitive pressure in the auto-sector was the main cause of overall productivity improvement, at least during the initial stages of FDI of the 1980s. Journal of International Business Studies (2003) 34, 199–218. doi:10.1057/palgrave.jibs.8400017

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 34 (2003)
    Issue (Month): 2 (March)
    Pages: 199-218

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    Handle: RePEc:pal:jintbs:v:34:y:2003:i:2:p:199-218

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    Cited by:
    1. Javorcik, Beata S. & Spatareanu, Mariana, 2011. "Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors," Journal of Development Economics, Elsevier, vol. 96(1), pages 126-138, September.
    2. Tian, Xiaowen, 2010. "Managing FDI technology spillovers: A challenge to TNCs in emerging markets," Journal of World Business, Elsevier, vol. 45(3), pages 276-284, July.
    3. Alessandra Perri & Raffaele Oriani & Francesco Rullani, 2012. "Does Co-Location Accelerate Knowledge Outflows from FDI? The Role of MNC Subsidiaries' Technology Sourcing Strategies," DRUID Working Papers 12-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    4. Ben Hamida, Lamia & Gugler, Philippe, 2009. "Are there demonstration-related spillovers from FDI?: Evidence from Switzerland," International Business Review, Elsevier, vol. 18(5), pages 494-508, October.
    5. Tang, Linghui & Koveos, Peter E., 2008. "Embodied and disembodied R&D spillovers to developed and developing countries," International Business Review, Elsevier, vol. 17(5), pages 546-558, October.
    6. Huu Thanh Tam Nguyen & Nguyen Khac, 2013. "Demand creation and competition effect of Export-platform FDI on backward linkages - Evidence from panel data analysis of Vietnamese supporting industries," Documents de recherche 13-02, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    7. Nicola Lacetera & Justin R. Sydnor, 2012. "Would You Buy a Honda Made in the U.S.? The Impact of Production Location on Manufacturing Quality," NBER Working Papers 18005, National Bureau of Economic Research, Inc.
    8. Akie Iriyama & Weilei Shi & John Prescott, 2014. "Frequency and directional reversal of equity ownership change in international joint ventures," Asia Pacific Journal of Management, Springer, vol. 31(1), pages 215-243, March.
    9. Hamida, Lamia Ben, 2013. "Are there regional spillovers from FDI in the Swiss manufacturing industry?," International Business Review, Elsevier, vol. 22(4), pages 754-769.
    10. García, Francisco & Jin, Byungchae & Salomon, Robert, 2013. "Does inward foreign direct investment improve the innovative performance of local firms?," Research Policy, Elsevier, vol. 42(1), pages 231-244.
    11. Anwar, Sajid & Nguyen, Lan Phi, 2011. "Foreign direct investment and trade: The case of Vietnam," Research in International Business and Finance, Elsevier, vol. 25(1), pages 39-52, January.
    12. Claudia de Fuentes & Gabriela Dutrénit, 2013. "SMEs’ Absorptive Capacities and Large Firms’ Knowledge Spillovers: Micro Evidence from the Machining Industry in Mexico," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 5(1), pages 1-30, April.
    13. Zoltan Acs & Siri Terjesen, 2013. "Born local: toward a theory of new venture’s choice of internationalization," Small Business Economics, Springer, vol. 41(3), pages 521-535, October.
    14. Mariotti, Sergio & Nicolini, Marcella & Piscitello, Lucia, 2013. "Vertical linkages between foreign MNEs in service sectors and local manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 133-145.
    15. Giorgio Barba Navaretti & Anthony J. Venables, 2013. "Multinationals and industrial policy," Oxford Review of Economic Policy, Oxford University Press, vol. 29(2), pages 361-382, SUMMER.
    16. Li, Jing & Zhou, Changhui, 2008. "Dual-edged tools of trade: How international joint ventures help and hinder capability building of Chinese firms," Journal of World Business, Elsevier, vol. 43(4), pages 463-474, October.
    17. Zhao, Wei & Liu, Ling & Zhao, Ting, 2010. "The contribution of outward direct investment to productivity changes within China, 1991-2007," Journal of International Management, Elsevier, vol. 16(2), pages 121-130, June.
    18. Alessandra Perri & Raffaele Oriani & Francesco Rullani, 2013. "Knowledge breadth of MNC subsidiaries and the duration of host-country firms' search," Working Papers 7, Department of Management, Università Ca' Foscari Venezia.
    19. Sinani, Evis & Meyer, Klaus E., 2004. "Spillovers of technology transfer from FDI: the case of Estonia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 445-466, September.
    20. García, Francisco & Avella, Lucía & Fernández, Esteban, 2012. "Learning from exporting: The moderating effect of technological capabilities," International Business Review, Elsevier, vol. 21(6), pages 1099-1111.

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