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FDI and world heterogeneities: The role of absorptive capacities

  • Isabel Álvarez

    (Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales (ICEI))

  • Raquel Marín

    (Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales (ICEI))

It is generally agreed that foreign direct investment (FDI) flows can contribute to the local upgrading of host economies, whereas the diverse technological strategies of multinational companies (MNCs) can determine the existence and size of spillover effects. When considering FDI entry modes, merger and acquisitions (M&As) reveal a higher level of interaction with local productive systems than general FDI. Accordingly, their impacts may differ depending on the development level of countries and on the characteristics of national systems. Our aim is to exam the relative importance of local determinants explaining different choices of FDI entry. We explore both the strengths of the traditional explanation of FDI flows as well as the relevance of institutional stability and consolidation of national absorptive capabilities; the latter are considered key features of national systems. Our findings confirm that the factors at a country level affecting general FDI differ from those concerning cross-border M&As and support the need to investigate new drivers for attraction of FDI. Structural factors explain better the behaviour of FDI, whereas the factors of national systems of innovation are more closely correlated with the cross-border M&As trend. Finally, although international inequalities persist when both developed and developing countries are considered, it is interesting to note the importance of the heterogeneity that characterises the developing world as a topic for further research.

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File URL: http://eprints.ucm.es/10120/1/WP06-08.pdf
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Paper provided by Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales in its series Working Papers del Instituto Complutense de Estudios Internacionales with number 06-08.

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Length: 25 pages ISBN Number: 978-84-691-6664-2
Date of creation: 2008
Date of revision:
Handle: RePEc:ucm:wpaper:06-08
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  1. repec:rdg:wpaper:em-dp2006-35 is not listed on IDEAS
  2. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-77, July.
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  9. John Cantwell & Grazia D. Santangelo, 2002. "M&As AND THE GLOBAL STRATEGIES OF TNCs," The Developing Economies, Institute of Developing Economies, vol. 40(4), pages 400-434, December.
  10. Shimizu, Katsuhiko & Hitt, Michael A. & Vaidyanath, Deepa & Pisano, Vincenzo, 2004. "Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future," Journal of International Management, Elsevier, vol. 10(3), pages 307-353.
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  18. repec:dgr:tuecis:0220 is not listed on IDEAS
  19. Criscuolo,Paola & Narula,Rajneesh & Verspagen,Bart, 2002. "The relative importance of home and host innovation systems in the internationalisation of MNE R&D: a patent citation analysis," Research Memorandum 035, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
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