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Multinationals, Technological Incompatibilities, and Spillovers

  • Carluccio, Juan
  • Fally, Thibault

Empirical studies provide evidence of positive spillovers from multinational firms to upstream suppliers coupled with negative spillovers to firms in the same industry. This paper shows that these empirical regularities can be rationalized in a model with incompatibilities between foreign and domestic technologies. When foreign technologies require specialized inputs, some local suppliers self-select into production for multinational firms. This ”technological segmentation” in the upstream industry magnifies the productivity advantage of multinationals by restricting backward and forward linkages to groups of firms using the same technology. In this setting, we study the role of heterogeneity among domestic firms. We show that only the best suppliers adopt the foreign technology and cater to multinationals. In the long run, technology adoption by the most productive downstream firms creates complementarities with multinationals that can offset the negative impact of segmentation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7869.

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Date of creation: Jun 2010
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Handle: RePEc:cpr:ceprdp:7869
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  1. Luigi Benfratello & Alessandro Sembenelli, 2002. "Foreign Ownership and Productivity: is the Direction of Causality so Obvious?," Development Working Papers 166, Centro Studi Luca d\'Agliano, University of Milano.
  2. Maurice Kugler, 2006. "Spillovers From Foreign Direct Investment:Within Or Between Industries?," BORRADORES DE ECONOMIA 003523, BANCO DE LA REPÚBLICA.
  3. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  4. Pol Antr�s, 2005. "Incomplete Contracts and the Product Cycle," American Economic Review, American Economic Association, vol. 95(4), pages 1054-1073, September.
  5. Rachel Griffith & Helen Simpson, 2004. "Characteristics of Foreign-Owned Firms in British Manufacturing," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 147-180 National Bureau of Economic Research, Inc.
  6. 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.
  7. Mathias Thoenig & Thierry Verdier, 2003. "A Theory of Defensive Skill-Biased Innovation and Globalization," American Economic Review, American Economic Association, vol. 93(3), pages 709-728, June.
  8. K. Schoors & B. Van Der Tol, 2002. "Foreign direct investment spillovers within and between sectors: Evidence from Hungarian data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/157, Ghent University, Faculty of Economics and Business Administration.
  9. Ralf Martin & Chiara Criscuolo, 2002. "A note on ownership and productivity in UK businesses," United Kingdom Stata Users' Group Meetings 2002 6, Stata Users Group.
  10. 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.
  11. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
  12. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
  13. repec:hrv:faseco:4784029 is not listed on IDEAS
  14. Holger Gorg & Frances Ruane, 2001. "Multinational Companies and Linkages: Panel-Data Evidence for the Irish Electronics Sector," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(1), pages 1-18.
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