Geography Reference
In-Depth Information
2.6.1
Spillovers, 'Home' and 'Host' Economies
It is a difficult problem to analyse externality issues because the impacts of
MNEs can operate simultaneously at different levels, such as that of the
firm, of the industry, of the region, of the country and also of the global
level: trying to disentangle them has proved to be extremely tricky, if not
impossible. As Ietto-Gillies (2005) points out, the assessment of MNE
effects is closely associated with the explanations of why, how and where
the multinational firm operates, thus making it rather problematic to
separate the questions on the causes from those on the impacts of mul-
tinationality. What seems to be the case, however, is that the traditional
lack of an effective spatial perspective in the MNE analysis has greatly
limited our understanding of some of the consequences and implications
of MNE activity. In particular, what are known as
spillover effects
- which
are almost universally acknowledged by all different theoretical strands as
the largest beneficial outcome of multinational operations - are virtually
impossible to be grasped without an explicit spatial perspective.
The geographical distinction between
home
and
host
economies
has
been generally viewed across the different theoretical approaches reviewed
above, as the country of origin and that of destination of the MNE, respec-
tively. Although the home-host dichotomy, which is based mainly on the
direction of FDI, is rather simplistic and imprecise (Ietto-Gillies 2005), the
bulk of the literature has found it convenient in providing a rationale for
classifying MNE effects. Leaving aside social, cultural and political issues,
the home and host dichotomy allows us to classify MNEs according to
differences in factor intensities of production structures, volumes and
directions of international trade, levels of wages and employment, market
structures, resources and capabilities, innovation and technology creation
and diffusion, as well as productivity and growth. In terms of the home-
host dichotomy, such issues can be seen as either mutually exclusive - i.e.
the benefits of the home country are the costs of the host country and vice
versa - or as complements - i.e. there may be benefits or even costs in both
the home and the host economies.
The issue of spillovers is strictly linked with that of knowledge flows
and technology transfer. In the work of Caves (1974), three main benefits
stemming from an MNE's presence in the host location are distinguished:
increased market competition, which may improve allocative efficiency;
demonstration effects, spurring domestic firms to increase their level of
technical efficiency, or X-efficiency; and transfer and diffusion of tech-
nology, encouraging local technical change. Already in Caves' work,
thus, the issue of knowledge spillovers is discussed by assuming mostly
a host economy viewpoint, as is the case of much subsequent work on
