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How foreign investment affects host countries

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Author Info
Blomstrom, Magnus
Kokko, Ari

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Abstract

Foreign direct investment may promote economic development by helping to improve productivity growth and exports in the multinationals'host countries, the authors conclude, after reviewing the empirical evidence. But the exact relationship between foreign multinational corporations and their host economies seems to vary between industries and countries. Multinational corporations mainly enter industries where barriers to entry and concentration are relatively high, and at first they increase the number of firms in the host country market. In the long run, they may contribute to a more concentrated market, although efficiency may improve, especially if protection does not guarantee an easy life for the multinational affiliate. However, most available evidence has to do with multinationals'entry into host countries'industries rather than with their presence -the dynamic aspects of multinationals'relationship to their competition in host country markets. Most evidence on multinationals'effects has to do with effects in industrial countries, and it is impossible to disregard the risk that the multinationals'entry into developing countries may replace local production and force local firms out of business, rather than force them to become more efficient.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1745.

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Date of creation: 31 Mar 1997
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Handle: RePEc:wbk:wbrwps:1745

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Keywords: Environmental Economics&Policies; Labor Policies; ICT Policy and Strategies; General Technology; Economic Theory&Research; Foreign Direct Investment; Environmental Economics&Policies; ICT Policy and Strategies; Trade and Regional Integration; General Technology;

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References listed on IDEAS
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.:
  1. Lim, Linda Y. C. & Fong, Pang Eng, 1982. "Vertical linkages and multinational enterprises in developing countries," World Development, Elsevier, vol. 10(7), pages 585-595, July. [Downloadable!] (restricted)
  2. Lall, Sanjaya, 1978. "Transnationals, Domestic Enterprises, and Industrial Structure in Host LDCs: A Survey," Oxford Economic Papers, Oxford University Press, vol. 30(2), pages 217-48, July. [Downloadable!] (restricted)
  3. Magnus Blomstrom & Edward N. Wolff, 1994. "Multinational Corporations and Productivity Convergence in Mexico," NBER Working Papers 3141, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Aitken, B. & Hanson, G.H. & Harrison, A.E., 1994. "Spillovers, Foreign Investment and Export Behavior," Papers 95-06, Columbia - Graduate School of Business.
    Other versions:
  5. Wang, Jian-Ye & Blomstrom, Magnus, 1992. "Foreign investment and technology transfer : A simple model," European Economic Review, Elsevier, vol. 36(1), pages 137-155, January. [Downloadable!] (restricted)
    Other versions:
  6. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April. [Downloadable!] (restricted)
  7. Bernstein, Jeffrey I, 1989. "The Structure of Canadian Inter-industry R&D Spillovers, and the Rates of Return to R&D," Journal of Industrial Economics, Blackwell Publishing, vol. 37(3), pages 315-28, March. [Downloadable!] (restricted)
  8. Kokko, Ari & Blomstrom, Magnus, 1995. "Policies to encourage inflows of technology through foreign multinationals," World Development, Elsevier, vol. 23(3), pages 459-468, March. [Downloadable!] (restricted)
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  9. Dunning, John H, 1973. "The Determinants of International Production," Oxford Economic Papers, Oxford University Press, vol. 25(3), pages 289-336, November. [Downloadable!] (restricted)
  10. Katz, Jorge M., 1984. "Domestic technological innovations and dynamic comparative advantage : Further reflections on a comparative case-study program," Journal of Development Economics, Elsevier, vol. 16(1-2), pages 13-37. [Downloadable!] (restricted)
  11. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Page, John M, Jr, 1980. "Technical Efficiency and Economic Performance: Some Evidence from Ghana," Oxford Economic Papers, Oxford University Press, vol. 32(2), pages 319-39, July. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February. [Downloadable!] (restricted)
  16. Lall, Sanjaya, 1980. "Vertical Inter-Firm Linkages in LDCs: An Empirical Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 42(3), pages 203-26, August.
  17. Magnus Blomstrom & Mario Zejan, 1991. "Why Do Multinational Firms Seek Out Joint Ventures?," NBER Working Papers 2987, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Jeffrey I. Bernstein, 1988. "Costs of Production, Intra- and Interindustry R&D Spillovers: Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 324-47, May. [Downloadable!] (restricted)
  19. Globerman, Steven, 1979. "A Note on Foreign Ownership and Market Structure in the United Kingdom," Applied Economics, Taylor and Francis Journals, vol. 11(1), pages 35-42, March.
  20. Flamm, Kenneth, 1984. "The volatility of offshore investment," Journal of Development Economics, Elsevier, vol. 16(3), pages 231-248, December. [Downloadable!] (restricted)
  21. Lipsey, Robert E. & Blomström, Magnus & Ramstetter, Eric, 1995. "Internationalized Production in World Output," Working Paper Series in Economics and Finance 80, Stockholm School of Economics.
    Other versions:
  22. Ari Kokko, 1996. "Productivity spillovers from competition between local firms and foreign affiliates," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(4), pages 517-530.
  23. Sanjaya Lall, 1979. "Multinationals and market structure in an open developing economy: The case of Malaysia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 115(2), pages 325-350, June. [Downloadable!] (restricted)
  24. Farok J Contractor, 1984. "Choosing Between Direct Investment and Licensing: Theoretical Considerations and Empirical Tests," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 15(3), pages 167-188, September. [Downloadable!] (restricted)
  25. Cantwell, John, 1995. "The Globalisation of Technology: What Remains of the Product Cycle Model?," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 155-74, February.
  26. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Blackwell Publishing, vol. 35(1), pages 97-110, September. [Downloadable!] (restricted)
  27. A Kokko & Ruben Tansini & Mario Zejan, 1995. "Trade regimes and effects of FDI: evidence from Uruguay," Documentos de Trabajo (working papers) 0695, Department of Economics - dECON.
  28. James Riedel, 1975. "The nature and determinants of export-oriented direct foreign investment in a developing country: A case study of Taiwan," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 111(3), pages 505-528, 09. [Downloadable!] (restricted)
  29. G. Rosenbluth, 1970. "The Relation between Foreign Control and Concentration in Canadian Industry," Canadian Journal of Economics, Canadian Economics Association, vol. 3(1), pages 14-38, February. [Downloadable!] (restricted)
  30. 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. [Downloadable!] (restricted)
  31. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February. [Downloadable!] (restricted)
  32. Teitel, Simon, 1984. "Technology creation in semi-industrial economies," Journal of Development Economics, Elsevier, vol. 16(1-2), pages 39-61. [Downloadable!] (restricted)
  33. Koizumi, Tetsunori & Kopecky, Kenneth J., 1977. "Economic growth, capital movements and the international transfer of technical knowledge," Journal of International Economics, Elsevier, vol. 7(1), pages 45-65, February. [Downloadable!] (restricted)
  34. Swan, Philip L, 1973. "The International Diffusion of an Innovation," Journal of Industrial Economics, Blackwell Publishing, vol. 22(1), pages 61-69, September. [Downloadable!] (restricted)
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