1. Technology and productivity effects of FDI Spillovers Dunning, chapters 11, 16, 18; Caves, chapter 7; Blomström & Kokko (1998 )

2. Repetition: FDI as a source of technology zArguments: ymost commercial technology owned by MNCs. yfew countries can afford comprehensive R&D programs on their own. ybenefits possible even if MNCs keep ownership of technology: spillovers. zObjections: yMNC technology may be too expensive. yMNC technology may not be appropriate.

3. Spillovers zWhen locals benefit from the presence of MNCs without paying the full price. zSeveral possible channels: yDemonstration effects, ”copying” MNCs. yTraining of employees who may leave the MNCs for jobs in local firms. yForward and backward linkages. yLocal firms are forced to work harder because of tougher competition.

4. Demonstration effects: examples zDiffusion of semiconductor technology in Europe - local firms didn’t start until US MNCs introduced the technology zExport marketing - the first successful exporters in Hong Kong were foreign MNCs, but locals soon followed zManagement technology - look at international diffusion of ”Fordism” and Japanese management practices

5. Training of labor zManagement training perhaps most important - most generally applicable skills zTraining of operatives - introduce ”industrial culture” zMany suppliers and sub-contractors of MNCs started by former MNC employees

6. Backward and forward linkages zBackward linkages yestablishment of suppliers ytechnical assistance to achieve high quality and product standards ypurchasing ydiversification zForward linkages ydevelopment of distribution and sales org. yassistance to end user (IT and computers)

7. Statistical studies zProduction functions Local productivity = f (capital, labor, firm & industry characteristics, foreign presence) zSpillovers occur if foreign presence matters Yes: Australia, Mexico, Canada Maybe not: Venezuela, Morocco

8. Reasons for mixed results zMNC behavior varies depending on the environment zMNC technologies may sometimes be irrelevant for local firms: foreign MNCs may operate in enclaves zAmount of FDI is not the only important determinant, but rather the character of competition between MNCs and local firms

9. Summary evidence on spillovers zLots of case studies showing that locals learn from MNCs. zBut spillovers are not automatic. Effects are determined by the local environment: - Technological capability and labor skills - Level of competition - Trade policy