Does the motivation for foreign direct investment affect productivity spillovers to the domestic sector?

Nigel L. Driffield, James H. Love

Research output: Contribution to journalArticle

Abstract

There is increasing empirical and theoretical evidence that foreign direct investment (FDI) may be motivated not by the desire to exploit some competitive advantage possessed by multinationals, but to access the technology of host economy firms. Using a panel of FDI flows across OECD countries and manufacturing sectors between 1984 and 1995, we test whether these contrasting motivations influence the effects that FDI has on domestic total factor productivity. The distinction between technology-exploiting FDI (TEFDI) and technology-sourcing FDI (TSFDI) is made using R&D intensity differentials between host and source sectors. The hypothesis that the motivation for FDI has an effect on total factor productivity spillovers is supported: TEFDI has a net positive effect, while TSFDI has a net negative effect. These net effects are explained in terms of the offsetting influences of productivity spillovers and market stealing effects induced by incoming multinationals.
Original languageEnglish
Pages (from-to)3-28
Number of pages26
JournalApplied Economics Quarterly
Volume52
Issue number1
Publication statusPublished - 2006

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Productivity spillovers
Foreign direct investment
Total factor productivity
Technology sourcing
Multinationals
OECD countries
Competitive advantage
Manufacturing sector

Keywords

  • FDI motivation
  • technology sourcing
  • productivity spillovers

Cite this

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Does the motivation for foreign direct investment affect productivity spillovers to the domestic sector? / Driffield, Nigel L.; Love, James H.

In: Applied Economics Quarterly, Vol. 52, No. 1, 2006, p. 3-28.

Research output: Contribution to journalArticle

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