Vertical and Horizontal FDI Technology Spillovers: Evidence from Thai Manufacturing
AbstractThis paper examines Foreign Direct Investment (FDI) spillover, using an unbalanced panel data set of the manufacturing survey of Thailand during the period 2001-03. In this paper, not only are both horizontal and vertical FDI technology spillovers examined, but the former is also assumed to vary across industries. The key hypothesis is that horizontal FDI spillovers depend on the trade policy regime as well as the absorptive capability of locally owned plants. Our panel data econometric analysis highlights the important role of the trade policy regime as a conditional gain of horizontal FDI spillovers. In particular, positive horizontal FDI spillovers are found only in an industry operating in a relatively liberal environment. Interestingly, imposing an assumption of identical horizontal FDI spillovers across industry could result in biased estimates of vertical FDI spillovers. The key policy inference highlights the relative importance of the trade policy regime in harnessing the gain from foreign presence. Liberalizing the foreign investment regime thus has to go hand in hand with liberalizing the trade policy to gain FDI technology spillovers. Our finding here gives a warning not to overemphasize the role of linkages. It is the quality rather than magnitude of linkages that should be used a proxy of the magnitude of vertical FDI spillovers.
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Bibliographic InfoPaper provided by Economic Research Institute for ASEAN and East Asia (ERIA) in its series Working Papers with number d011.
Date of creation: 2009
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Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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