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The determinants of host country spillovers from foreign direct investment: review and synthesis of the literature

Author

Listed:
  • Blomstrom, Magnus

    () (Dept. of Economic Statistics, Stockholm School of Economics)

  • Globerman, Steven

    () (Dept. of Economic Statistics, Stockholm School of Economics)

  • Kokko, Ari

    () (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

The existence of spillover efficiency benefits to host country economies from inward foreign direct investment(FDI) are well documented in the literature, particularly for economically developed host economies. The determinantsof the size and scope of the spillover benefits have also been studied, but they are not as clearly and consistently documented as the exixtence of the relevant externalities. Yet, a good understanding of the determinants of the nature and magnitude of of FDI efficiency spillovers is of crucial importance to policymakers. the primary purpose of this paper is to review and synthesize the available literature foucusing on the determinants of efficiency spillovers from inward FDI. In order to do so, we also outline a theoretical framework for understanding the underlying "supply'"and "demand" forces determining the scope and magnitude of FDI spillovers to host economies. The findings suggest that the competitiveness of host country markets, proxied e.g. by openness to imports, and the technical capability of lopcal firms are among the most important deteminants of spiloover benefits. Both of these characteristics can be influenced by the host country policy. However, it is difficult to provide unequivoval policy advice othe the basis of this findings, since some of the policies that maximize the potential spilloversfrom a given "pool" of appropriable technology (such as technology transfer requirements or active competition policies) may actually reduce the attractiveness of the host country to some foreign investors.

Suggested Citation

  • Blomstrom, Magnus & Globerman, Steven & Kokko, Ari, 1999. "The determinants of host country spillovers from foreign direct investment: review and synthesis of the literature," SSE/EFI Working Paper Series in Economics and Finance 502, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0502
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    Cited by:

    1. Marcella Nicolini & Laura Resmini, 2006. "The Impact of Mnes on Domestic Firms in CEECS: A Micro-Econometric Approach," ERSA conference papers ersa06p411, European Regional Science Association.
    2. Takii, Sadayuki, 2005. "Productivity spillovers and characteristics of foreign multinational plants in Indonesian manufacturing 1990-1995," Journal of Development Economics, Elsevier, vol. 76(2), pages 521-542, April.
    3. Stefan Lutz & Oleksandr Talavera, 2004. "Do Ukrainian Firms Benefit from FDI?," Economic Change and Restructuring, Springer, vol. 37(2), pages 77-98, June.
    4. Seyoum, Mebratu & Wu, Renshui & Yang, Li, 2015. "Technology spillovers from Chinese outward direct investment: The case of Ethiopia," China Economic Review, Elsevier, vol. 33(C), pages 35-49.
    5. Resmini, Laura, 2006. "Theoretical and Methodological Study on Comparative Advantages in Dynamic Growth Regions, Convergence and Inequalities Patterns," Papers DYNREG03, Economic and Social Research Institute (ESRI).
    6. Peri, Giovanni & Urban, Dieter, 2006. "Catching-up to foreign technology? Evidence on the "Veblen-Gerschenkron" effect of foreign investments," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 72-98, January.
    7. Hemmer, Hans-Rimbert & Krüger, Ralf & Seith, Jennifer, 2006. "Ausländische Direktinvestitionen: Flankierende Maßnahmen des Staates," Discussion Papers in Development Economics 36, Justus Liebig University Giessen, Institute for Development Economics.
    8. Dieter M. Urban, 2010. "FDI, Technology Spillovers, and Wages," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 443-453, August.
    9. Assaf Razin, 2002. "FDI Contribution to Capital Flows and Investment in Capacity," NBER Working Papers 9204, National Bureau of Economic Research, Inc.
    10. Röttgers, Dirk & Grote, Ulrike, 2014. "Africa and the Clean Development Mechanism: What Determines Project Investments?," World Development, Elsevier, vol. 62(C), pages 201-212.
    11. Edna Maeyen Solomon, 2011. "Foreign Direct Investment, Host Country Factors and Economic Growth," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 41-70, May.
    12. Ksenia Yudaeva & Kozlov Konstantin & Natalia Melentieva & Natalia Ponomareva, 2000. "Does Foreign Ownership Matter? Russian Experience," Working Papers w0005, Center for Economic and Financial Research (CEFIR).
    13. repec:kap:iaecre:v:11:y:2005:i:2:p:201-213 is not listed on IDEAS
    14. Sourafel Girma & David Greenaway & Katharine Wakelin, 2013. "Who Benefits from Foreign Direct Investment in the UK?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(5), pages 560-574, November.
    15. Jordaan, Jacob A., 2005. "Determinants of FDI-induced externalities: New empirical evidence for Mexican manufacturing industries," World Development, Elsevier, vol. 33(12), pages 2103-2118, December.
    16. Filippo Reganati & Edgardo Sica, 2005. "Do domestic firms benefit from the presence of MNEs? The case of the Italian manufacturing sector," Quaderni DSEMS 23-2005, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    17. Galina Hale & Cheryl Long, 2011. "Are There Productivity Spillovers From Foreign Direct Investment In China?," Pacific Economic Review, Wiley Blackwell, vol. 16(2), pages 135-153, May.
    18. Galina Hale & Cheryl Long, 2006. "What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China," Working Papers 934, Economic Growth Center, Yale University.
    19. Su, Yaqin & Liu, Zhiqiang, 2016. "The impact of foreign direct investment and human capital on economic growth: Evidence from Chinese cities," China Economic Review, Elsevier, vol. 37(C), pages 97-109.
    20. Takii, Sadayuki, 2004. "Productivity Differentials Between Local and Foreign Plants in Indonesian Manufacturing, 1995," World Development, Elsevier, vol. 32(11), pages 1957-1969, November.
    21. Lee, Seung-Hyun & Peng, Mike W. & Song, Sangcheol, 2013. "Governments, entrepreneurs, and positive externalities: A real options perspective," European Management Journal, Elsevier, vol. 31(4), pages 333-347.
    22. Hallin, Christina & Holmström Lind, Christine, 2012. "Revisiting the external impact of MNCs: An empirical study of the mechanisms behind knowledge spillovers from MNC subsidiaries," International Business Review, Elsevier, vol. 21(2), pages 167-179.
    23. Zhao, Wei & Liu, Ling & Zhao, Ting, 2010. "The contribution of outward direct investment to productivity changes within China, 1991-2007," Journal of International Management, Elsevier, vol. 16(2), pages 121-130, June.

    More about this item

    Keywords

    foreign direct investment; multinational corporations; spillovers;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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