Abstract
This paper reviews the theory and the empirical studies on the hypothesis that FDI may generate technology spillovers to the host countries. There are five sources affecting the scope and significance of the technology spillovers from FDI: (1) linkages between foreign affiliates and local firms, (2) R&D efforts undertaken by MNC affiliates, (3) training of local firms in the foreign affiliates, (4) demonstration effects, and (5) ownership sharing of foreign affiliates.
The study concludes that: (1) The literature and empirical evidence show mixed support for the hypothesis that FDI yields positive spillovers to the host countries. (2) Backward linkages are the strongest channel for diffusing technology from foreign affiliates; governments in host countries can play a significant role in creating and deepening these linkages. (3) Spillovers from FDI may decrease national welfare in most developing countries because the local firms are often not able to compete with MNC, and this may lead to a loss in profits due to the crowding out of these local firms. Henceforth, strong local firms could be the key challenge for developing countries to receive positive spillovers from FDI.
Recommended Citation
Elmawazini, Khaled
(2004)
"Technology Spillovers from Foreign Direct Investment: Recent Empirical Findings—A Review,"
Journal of African Policy Studies: Vol. 10:
No.
2, Article 5.
Available at:
https://ecommons.udayton.edu/joaps/vol10/iss2/5