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How firm capabilities affect who benefits from foreign technology

  • Blalock, Garrick
  • Gertler, Paul J.

We explore how firm capabilities affect the diffusion of technology brought with foreign direct investment (FDI). Using a panel dataset on Indonesian manufacturers from 1988 to 1996, we measure how the productivity of differing domestic firms responds to the entry of multinational competitors. We find that firms with investments in research and development and firms with highly educated employees adopt more technology from foreign entrants than others. In contrast, firms that have a small "technology gap," meaning that they are close to the international best-practice frontier, benefit less than firms with weak prior technical competency. This finding suggests that the marginal return to new knowledge is greater for firms that have more room to "catch up" than it is for already competitive firms.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 90 (2009)
Issue (Month): 2 (November)
Pages: 192-199

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Handle: RePEc:eee:deveco:v:90:y:2009:i:2:p:192-199
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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