Spillovers from Multinationals in Developing Countries: the Mechanisms at Work

Most research suggests that spillovers commonly benefit the productivity of LDCs' local firms from market contacts with foreign subsidiaries, but little attention has gone to where those spillovers might be large, where nonexistent. In Particular, LDC local firms can be constrained away from frontier effectiveness in at least four ways. Each constraint has different implications for the nature and extent of spillovers from foreign subsidiaries. The analysis also yields predictions how spillovers will vary with differences in the situations of subsidiaries and local competitors, and with elements of the structures of industries in which they operate. Limited empirical evidence supports the predictions and the general approach to refining our expectations about the prevalence and nature of spillovers.