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The Determinants of Host Country Spillovers from Foreign Direct Investment: Review and Synthesis of the Literature

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Author Info

  • Blomström, Magnus

    ()
    (The European Institute of Japanese Studies)

  • Globerman, Steven

    ()
    (College of Business and Economics)

  • Kokko, Ari

    ()
    (Åbo Akademi)

Abstract

The existence of spillover efficiency benefits to host country economies from inward foreign direct investment (FDI) are well documented in the literature, particularly for economically developed host economies. The determinants of the size and scope of the spillover benefits have also been studied, but they are not as clearly and consistently documented as the existence and magnitude of the relevant externalities. Yet, a good understanding of the determinants of the nature and magnitude of FDI efficiency spillovers is of crucial importance to policymakers. The primary purpose of this paper is to review and synthesize the available literature focusing on the determinants of efficiency spillovers from inward FDI. In order to do so, we also outline a theoretical framework for understanding the underlying "supply" and "demand" forces determining the scope and magnitude of FDI spillovers to host economies. The findings suggest that the competitiveness of host country markets, proxied e.g. by the openness to imports, and the technical capability of local firms are among the most important determinants of spillover benefits. Both of these characteristics can be influenced by host country policy. However, it is difficult provide unequivocal policy advice on the basis of these findings, since some of the policies that maximize the potential spillovers from a given "pool" of appropriable technology (such as technology transfer requirements or active competition policies) may actually reduce the attractiveness of the host country to some foreign investors.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 339.

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Length: 31 pages
Date of creation: 27 Oct 1999
Date of revision:
Publication status: Published in Inward Investment, Technological Change and Growth, Pain, N. (eds.), 2001, pages 34-66, London: Pegrave.
Handle: RePEc:hhs:hastef:0339

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Keywords: Foreign Direct Investment; multinational corporations; spillovers;

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Cited by:
  1. Dieter M. Urban, 2007. "FDI Technology Spillovers and Wages," CESifo Working Paper Series 2132, CESifo Group Munich.
  2. Jordaan, Jacob A., 2005. "Determinants of FDI-induced externalities: New empirical evidence for Mexican manufacturing industries," World Development, Elsevier, Elsevier, vol. 33(12), pages 2103-2118, December.
  3. 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, Elsevier, vol. 16(2), pages 121-130, June.
  4. Assaf Razin, 2002. "FDI Contribution to Capital Flows and Investment in Capacity," NBER Working Papers 9204, National Bureau of Economic Research, Inc.
  5. Resmini, Laura & Nicolini, Marcella, 2007. "Productivity Spillovers from Foreign Investment: The Role of Neglected Conditionalities," Papers, Economic and Social Research Institute (ESRI) DYNREG11, Economic and Social Research Institute (ESRI).
  6. Edna Maeyen Solomon, 2011. "Foreign Direct Investment, Host Country Factors and Economic Growth," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 41-70, May.
  7. Takii, Sadayuki, 2004. "Productivity Differentials Between Local and Foreign Plants in Indonesian Manufacturing, 1995," World Development, Elsevier, Elsevier, vol. 32(11), pages 1957-1969, November.
  8. Peri, Giovanni & Urban, Dieter, 2006. "Catching-up to foreign technology? Evidence on the "Veblen-Gerschenkron" effect of foreign investments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 36(1), pages 72-98, January.
  9. Takii, Sadayuki, 2005. "Productivity spillovers and characteristics of foreign multinational plants in Indonesian manufacturing 1990-1995," Journal of Development Economics, Elsevier, Elsevier, vol. 76(2), pages 521-542, April.
  10. Hemmer, Hans-Rimbert & Krüger, Ralf & Seith, Jennifer, 2006. "Ausländische Direktinvestitionen: Flankierende Maßnahmen des Staates," Discussion Papers in Development Economics 36, Justus Liebig University Giessen, Institute for Development Economics.
  11. Galina Hale & Cheryl Long, 2007. "Are there productivity spillovers from foreign direct investment in China?," Working Paper Series, Federal Reserve Bank of San Francisco 2006-13, Federal Reserve Bank of San Francisco.
  12. Talavera, Oleksandr & Lutz, Stefan H., 2003. "Do Ukrainian Firms Benefit from FDI?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 03-05, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  13. Filippo Reganati & Edgardo Sica, 2005. "Do domestic firms benefit from the presence of MNEs? The case of the Italian manufacturing sector," Quaderni DSEMS, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia 23-2005, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  14. Resmini, Laura, 2006. "Theoretical and Methodological Study on Comparative Advantages in Dynamic Growth Regions, Convergence and Inequalities Patterns," Papers, Economic and Social Research Institute (ESRI) DYNREG03, Economic and Social Research Institute (ESRI).
  15. Hallin, Christina & Holmström Lind, Christine, 2012. "Revisiting the external impact of MNCs: An empirical study of the mechanisms behind knowledge spillovers from MNC subsidiaries," International Business Review, Elsevier, Elsevier, vol. 21(2), pages 167-179.
  16. Oscar Alfranca, 2005. "Private R&D and Spillovers in European Agriculture," International Advances in Economic Research, Springer, Springer, vol. 11(2), pages 201-213, May.
  17. Ksenia Yudaeva & Kozlov Konstantin & Natalia Melentieva & Natalia Ponomareva, 2000. "Does Foreign Ownership Matter? Russian Experience," Working Papers w0005, Center for Economic and Financial Research (CEFIR).
  18. Galina Hale & Cheryl Long, 2006. "What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China," Working Papers, Economic Growth Center, Yale University 934, Economic Growth Center, Yale University.

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