Magnus Blomstrom

Multinational Corporations and Spillovers

This paper examines spillover effects of the activities of multinational firms. Such effects are most likely to be found in host countries, where the operations of foreign multinationals may influence local firms in the MNCs own industry as well as firms in other industries. However, there is no comprehensive evidence on the exact nature or magnitude of these effects, although it is suggested that host country spillovers vary systematically between countries and industries. In particular, the positive effects of foreign investment are likely to increase with the level of local capability and competition. The spillovers to the home countries of MNCs are often more difficult to identify, for various reasons. Earlier studies suggest that the effects are generally positive, but the increasing international division of labor within multinationals complicates the analysis. The impact on the home country is likely to depend on what activities these firms concentrate at home.

Technology Transfer and Spillovers? Does Local Participation with Multinationals Matter?

This paper examines the effects on technology transfer and spillovers deriving from ownership sharing of foreign multinational affiliates. More specifically, we try to answer two questions, using unpublished Indonesian micro data. Firstly, do establishments with minority and majority ownership differ in terms of productivity levels? Secondly, does the degree of spillover differ with the degree of ownership in the FDI? Our results show that foreign establishments have comparable high levels of labor productivity and that domestic establishments benefit from spillovers. However, the degree of foreign ownership does neither affect the level of labor productivity in foreign establishments, nor the degree of spillovers.

Foreign Investment and Technology Transfer: A Simple Model

This paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon, resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms. The model explicitly recognizes two types of costs -- the costs to the multinational of transferring technology to its subsidiaries and the learning costs of domestic firms -- and treats technology transfer in a game theoretic context. The model points to the importance of the learning efforts of host-country firms in increasing the rate at which MNCs transfer technology. The paper also explores some of the reasons why learning investment in host country firms may be suboptimal.

Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry

Abstract In this paper we consider the question whether differences in technical efficiency of Mexican plants in part derive from spillover efficiency associated with foreign direct investment. We use labour productivity as a measure of technical efficiency, and relate this to capital intensity, labour quality and scale of production. We measure the degree of competition by different concentration indices and the final factor determining efficiency is the presence of foreign subsidiaries. If there is a positive relation between efficiency of domestic plants and the foreign participation of various industries we conclude that there is a spillover of technical efficiency. The empirical evidence from the study indicates that this is the case.

The Economics of Foreign Direct Investment Incentives

This paper suggests that the use of investment incentives focusing exclusively on foreign firms, although motivated in some cases from a theoretical point of view, is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI spillovers of foreign technology and skills to local industry is not an automatic consequence of foreign investment. The potential spillover benefits are realized only if local firms have the ability and motivation to invest in absorbing foreign technologies and skills. To motivate subsidization of foreign investment, it is therefore necessary, at the same time, to support learning and investment in local firms as well.

Multinational Corporations and Productivity Convergence in Mexico

This paper examines the impact of the operations of foreign-owned multinational firms on the productivity growth of Mexican manufacturing industries, 1965-1984. It investigates both the extent to which the penetration of a sector by foreign-owned firms affects the productivity of local firms in that sector and whether there is any evidence of convergence between that industrys productivity level and that of the United States. The main results can be summarized as follows: First, productivity levels of locally-owned firms in Mexico have converged to those of foreign-owned firms. Second, both the rate of productivity growth of local firms and their rate of catch-up to the multinationals are positively related to the degree of foreign ownership of an industry. Third, the productivity gap between Mexico and U.S. manufacturing has diminished between the mid-1960s and the mid-1980s. Fourth, the rate of productivity growth of Mexican industries and its rate of convergence to the United States are higher in industries with a greater presence of multinationals. We conclude that multinational firms have contributed to a geographical diffusion of technology and acted as a bridge between advanced and less advanced countries.

Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden

We compare the relation between foreign affiliate production and parent employment in U.S. manufacturing multinationals with that in Swedish firms. U.S. multinationals appear to have allocated some of their more labor intensive operations selling in world markets to affiliates in developing countries, reducing the labor intensity in their home production. Swedish multinationals produce relatively little in developing countries and most of that has been for sale within host countries with import-substituting trade regimes. The great majority of Swedish affiliate production is in high-income countries, the U.S. and Europe, and is associated with more employment, particularly blue-collar employment, in the parent companies. The small Swedish-owned production that does take place in developing countries is also associated with more white-collar employment at home. The effects on white-collar employment within the Swedish firms have grown smaller and weaker over time.

Host country competition, labor skills, and technology transfer by multinationals

Host Country Competition, Labor Skills, and Technology Transfer by Multinationals. — This paper examines the impact of local competition and the availability of skilled labor on the technology imports of foreign MNC affiliates in Mexican manufacturing industries. The authors find that proxies for local competition and labor skills are positively related to the recorded technology imports of foreign owned affiliates. The effects of competition appear to be particularly strong in intermediate and consumer goods industries, while the availability of skilled labor seems to be particularly important in durable and capital goods industries. Thus, government policies aiming to create a competitive climate and improve labor quality may also promote inflows of modern technology.ZusammenfassungWettbewerb im Gastland, Qualifikation der Arbeitskräfte und Technologietransfer durch multinationale Firmen. — Die Verfasser untersuchen, wie sich die Konkurrenz im Inland und die Verfügbarkeit ausgebildeter Arbeitskräfte auf den Technologietransfer ausländischer multinationaler Firmen in mexikanischen Industriezweigen auswirken. Sie zeigen, daß Näherungswerte für die Konkurrenz im Inland und die Qualifikation der Arbeitskräfte mit den Technologieimporten der Filialen in ausländischem Eigentum positiv korreliert sind. Der Einfluß des Wettbewerbs scheint besonders stark zu sein bei Erzeugern von Zwischenprodukten und Konsumgütern, während die Verfügbarkeit ausgebildeter Arbeitskräfte bei Erzeugern von dauerhaften Konsumgütern und Investitionsgütern besonders wichtig zu sein scheint. Daraus folgt, daß eine Regierungspolitik, die sich bemüht, ein Wettbewerbsklima zu schaffen und die Qualifikation der Arbeitskräfte zu erhöhen, auch den Import moderner Technologie begünstigt.

Why Do Multinational Firms Seek Out Joint Ventures

This paper uses a model of dichotomous choice to distinguish the characteristics of Swedish multinational firms that seek out joint ventures from those that do not. The findings suggest that firms with little experience of foreign production and highly diversified product lines are the most likely to share equity. In general, it is found that multinational firms that have the most to offer the developing countries are reluctant to enter into joint venture agreements. Therefore, imposing joint-venture status on multinationals may prevent the inflow of advanced technologies.

Foreign Investment as a Vehicle for International Technology Transfer

Economic theory provides two approaches to studying the effects of foreign direct investment (FDI) on host countries. One is rooted in the standard theory of international trade and dates back to MacDougall (1960).This is a partial equilibrium comparative-static approach intended to examine how marginal increments in investment from abroad are distributed. The main prediction of the model is that inflows of foreign capital — whether in the form of FDI or portfolio capital — will raise the marginal product of labor and reduce the marginal product of capital in the host country. In addition, MacDougall suggests that FDI may be connected to other potentially important benefits: