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Multinational firms, exclusivity, and the degree of backward linkages

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  • Lin, Ping
  • Saggi, Kamal

Abstract

This paper develops a two-tier oligopoly model in which the entry of a multinational firm results in technology transfer to its local suppliers and also impacts the degree of backward linkages in the local industry. The model endogenizes the multinational's choice between anonymous market interaction with its suppliers and contractual relationships with them under which the multinational transfer technology to its suppliers who in turn agree to serve the multinational exclusively. The multinational's entry under an exclusive contract has a de-linking effect that can reduce the degree of competition among suppliers thereby leading to a decline in the level of backward linkages and local welfare. With its emphasis on the supply-side effects of the multinational's entry on local industry, this paper complements existing studies of backward linkages that focus more on demand-side effects.

Suggested Citation

  • Lin, Ping & Saggi, Kamal, 2005. "Multinational firms, exclusivity, and the degree of backward linkages," Discussion Paper Series 1: Economic Studies 2005,10, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:2943
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    References listed on IDEAS

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    1. Theodore H. Moran, 1998. "Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 53.
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    7. Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," World Bank Research Observer, World Bank Group, vol. 17(2), pages 191-235, September.
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    10. Pack, Howard & Saggi, Kamal, 2001. "Vertical technology transfer via international outsourcing," Journal of Development Economics, Elsevier, vol. 65(2), pages 389-415, August.
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    Citations

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    Cited by:

    1. Campos, Nauro F & Kinoshita, Yuko, 2008. "Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America," IZA Discussion Papers 3332, Institute for the Study of Labor (IZA).
    2. Piotr Ciżkowicz & Magda Ciżkowicz-Pękała & Piotr Pękała & Andrzej Rzońca, 2015. "The effects of special economic zones on employment and investment: spatial panel modelling perspective," NBP Working Papers 208, Narodowy Bank Polski, Economic Research Department.
    3. Simons, Alexandre, 2014. "How does technology transfer affect backward linkages? A motivating example theoretical analysis," Economic Modelling, Elsevier, vol. 42(C), pages 94-105.
    4. Wei Jin, 2012. "International Knowledge Spillover and Technology Externality: Why Multilateral R&D Coordination Matters for Global Climate Governance," CAMA Working Papers 2012-53, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Cizkowicz, Piotr & Cizkowicz-Pekala, Magda & Pekala, Piotr & Rzonca, Andrzej, 2015. "The Effects of Polish Special Economic Zones on Employment and Investment: Spatial Panel Modelling Perspective," MPRA Paper 63176, University Library of Munich, Germany.
    6. Wei Jin, 2012. "Can China Harness Globalization to Reap Carbon Savings? Modeling International Technology Diffusion in a Multi-region Framework," CAMA Working Papers 2012-52, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    Multinational Firms; Backward Linkages; Vertical Technology Transfer; Exclusivity;

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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