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Assessing Value Creation and Backward Linkages in Foreign Investment: A Combination of Macro and Micro Tools

In: Multinationals, Clusters and Innovation

Author

Listed:
  • Teresa Morais Costa
  • Alexandre Videira
  • Francisco Veloso

Abstract

Foreign Direct Investment (FDI) is considered an important pillar of economic development (Katz, 1969; Aitken and Harrison, 1991; Markusen and Venables, 1997; Sjöholm, 1999a,b). There are multiple avenues through which FDI can contribute to an economy (de Mello, 1997; Moran, 1998). The foreign investor can provide a product that the local companies are not capable of supplying, or it can stimulate the national economy by creating an additional demand for intermediate or primary goods, as well as for labor. It can also complement national savings, thus contributing to the accumulation of capital. In addition, FDI has the potential to supply knowledge and technology capable of generating externalities that lead to higher productivity and increase national output (Haddad and Harrison, 1993; Aitken et al., 1996), for example, by bringing technologies that increase the marginal productivity of existing ones (Romer, 1986), or training and developing new capabilities in the workers (Borensztein et al., 1995).

Suggested Citation

  • Teresa Morais Costa & Alexandre Videira & Francisco Veloso, 2006. "Assessing Value Creation and Backward Linkages in Foreign Investment: A Combination of Macro and Micro Tools," Palgrave Macmillan Books, in: Ana Teresa Tavares & Aurora Teixeira (ed.), Multinationals, Clusters and Innovation, chapter 13, pages 214-233, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-62494-8_13
    DOI: 10.1057/9780230624948_13
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