Quality of Foreign Direct Investment, Knowledge Spillovers and Host Country Productivity: A Framework of Analysis
AbstractThe existing research on knowledge‐spillovers from foreign direct investment (FDI) has invariably treated all foreign firms as homogeneous and of equal importance for the development of host countries. However, in actual market situations foreign firms are basically non‐homogeneous and of varying qualities as far as the potential for knowledge‐spillover are concerned. Foreign firms differ in terms of export‐orientation, intensity to undertake local R&D activities, vertical integration, generating demands for local raw materials, and entry modes. Non‐inclusion of such quality dimensions of FDI into the spillover analysis is certainly an important limitation of the existing literature. This paper has explored different notion of FDI quality and argued that it should be included in the empirical studies on spillover analysis. This paper has develop an empirical framework for inclusion of quality dimensions in exploring FDI related spillovers on host country productivity and propose a percentile criterion to distinguish between low and high quality FDI firms in empirical exercises. Since there are several dimensions of FDI quality, the study suggest that the researchers can utilize the principal component analysis (PCA) to build a composite quality index to define low and high quality FDI firms. The empirical exercise on the construction of FDI quality index and related spillover variables for the Indian manufacturing sector shows that there are considerable differences exists between the spillovers variables associated with high and low quality FDI firms. This difference is more pronounced at individual industries level. Unless the differences that are present across foreign firms in terms of quality are brought into the spillover analysis, the obtained results are likely to give misleading conclusions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12336.
Date of creation: Dec 2006
Date of revision:
FDI Quality; Knowledge‐Spillover;
Other versions of this item:
- Jaya Prakash Pradhan, 2006. "Quality of Foreign Direct Investment, Knowledge Spillovers and Host Country Productivity: A Framework of Analysis," Working Papers 0611, Institute for Studies in Industrial Development (ISID).
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dutt, Amitava Krishna, 1997. "The pattern of direct foreign investment and economic growth," World Development, Elsevier, vol. 25(11), pages 1925-1936, November.
- Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
- Holger Görg & David Greenaway, 2004.
"Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?,"
World Bank Research Observer,
World Bank Group, vol. 19(2), pages 171-197.
- Görg, Holger & Greenaway, David, 2003. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," IZA Discussion Papers 944, Institute for the Study of Labor (IZA).
- Ari Kokko & Mario Zejan & Ruben Tansini, 2001. "Trade regimes and spillover effects of FDI: Evidence from Uruguay," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(1), pages 124-149, March.
- Vinish Kathuria, 2000. "Productivity spillovers from technology transfer to Indian manufacturing firms," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 343-369.
- Markusen, James R. & Venables, Anthony J., 1999.
"Foreign direct investment as a catalyst for industrial development,"
European Economic Review,
Elsevier, vol. 43(2), pages 335-356, February.
- James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
- Pradhan, Jaya Prakash & Das, Keshab & Paul, Mahua, 2006. "Export-orientation of Foreign Manufacturing Affiliates in India: Factors, Tendencies and Implications," MPRA Paper 12338, University Library of Munich, Germany.
- Steven Globerman, 1979. "Foreign Direct Investment and `Spillover' Efficiency Benefits in Canadian Manufacturing Industries," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 42-56, February.
- Blomstrom, Magnus & Persson, Hakan, 1983. "Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry," World Development, Elsevier, vol. 11(6), pages 493-501, June.
- Pradhan, Jaya Prakash, 2004. "FDI spillovers and local productivity growth: evidence from Indian pharmaceutical industry," MPRA Paper 17080, University Library of Munich, Germany.
- Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April.
- Cantwell, John & Janne, Odile, 1999. "Technological globalisation and innovative centres: the role of corporate technological leadership and locational hierarchy1," Research Policy, Elsevier, vol. 28(2-3), pages 119-144, March.
- Patel, Pari & Vega, Modesto, 1999. "Patterns of internationalisation of corporate technology: location vs. home country advantages1," Research Policy, Elsevier, vol. 28(2-3), pages 145-155, March.
- Ari Kokko & Ruben Tansini & Mario Zejan, 1994.
"Productivity spillovers from FDI in the Uruguayan manufacturing sector,"
Documentos de Trabajo (working papers)
0194, Department of Economics - dECON.
- Kokko, Ari & Tansini, Ruben & Zejan, Mario, 1994. "Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector," Working Paper Series in Economics and Finance 2, Stockholm School of Economics.
- Miao Wang & M. C. Sunny Wong, 2009. "What Drives Economic Growth? The Case of Cross-Border M&A and Greenfield FDI Activities," Kyklos, Wiley Blackwell, vol. 62(2), pages 316-330, 04.
- 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.
- Pradhan, Jaya Prakash, 2008. "Indian Direct Investment in Developing Countries: Emerging Trends and Development Impacts," MPRA Paper 12323, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.