The Impact of International Trade and FDI on Economic Growth and Technological Change by Patricia Hofmann

Author:Patricia Hofmann
Language: eng
Format: epub
Publisher: Springer Berlin Heidelberg, Berlin, Heidelberg

4.2.2.4 Outward FDI Spillovers

In Sect. 4.1.7, the technology sourcing and technology monitoring motive is highlighted to be an important explanation for either acquiring foreign firms or for setting up a new plant in a foreign industry or knowledge cluster. Firms from most often less technological countries strive to increase their innovative capabilities by accessing foreign firm knowledge or by being physically present in highly innovative regions like e.g. Silicon Valley. Despite the evidence on technology sourcing as motive, the question is if the expected knowledge dissemination to the foreign acquirers and thus ultimately to the foreign sending country does actually take place and is empirically verifiable.

Lichtenberg and Van Pottelsberghe de la Potterie (2001) address this question by investigating the effect of FDI outflows on a sending country’s domestic total factor productivity for 1380 industrialised countries in the period between 1971 and 1990. They find that outward FDI flows have positive and highly significant effects on the output of sending countries thereby confirming the technology sourcing hypothesis. For example a 1 % increase in the US R&D capital stock raises the Japanese output by 0.027 % via the channel of outward FDI. The authors also report that this spillover channel is not really reciprocal. Outward FDI directed to the US and to the UK are on average more beneficial for sending countries than outward FDI directed to e.g. Germany or Japan. Thus, the world source for technology sourcing is Anglo-Saxon. Concerning countries that use this way of accessing international knowledge most intensively Lichtenberg and Van Pottelsberghe de la Potterie (2001) name Japan and the UK but also for The Netherlands, Germany, and Greece, technology sourcing is highly relevant. Technology sourcing is negligible for the US.

A different approach to address knowledge flows from FDI is applied by Singh (2007). The author uses patent citations to examine knowledge flows between the host country and the multinational home base and finds not only knowledge inflows from foreign multinationals to host country organisations81 but also significant outflows from the host country to foreign MNEs. Similar to Lichtenberg and Van Pottelsberghe de la Potterie (2001), these results suggest asymmetries between the destination countries’ ability to serve as a cradle for technology sourcing. On average advanced countries are superior sources as compared to technologically less advanced countries.82

Griffith et al. (2006) analyse how the growth of the US R&D stock of manufacturing affects UK companies that have a high proportion of US-based inventors83 in 1990. They find that the UK firms’ TFP would have been 5 % lower in 2000 in the absence of the US R&D growth in the 1990s. Additionally, they report a positive effect of the technology gap. This relation is also not reciprocal in nature in the sense that US firms do not similarly profit from UK R&D growth.

These results are quite encouraging for outward FDI having a positive feedback effect on MNEs home countries in terms of technology diffusions from the target countries. Still what lacks is an explanation how these outwards spillovers take place.

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