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spillovers effects (e.g., Blomström and Persson 1983; Kokko 1994, 1996;
Blomström and Kokko 1996, 1997, 1998; Lipsey 2001a, b; Javorcik 2004;
Lin and Saggi 2004; Javorcik and Spatareanu 2008). The benefits of an
MNE's presence for host countries are broadly classified into two types:
productivity spillovers and market access spillovers. The former kind of
spillovers are the result of tougher competition following foreign entry.
This may create incentives for local firms to introduce new technologies
and organizational practices in order to compete with the new entrants.
In addition, MNEs allow local firms access to new technologies and skills
from backward and forward linkages, as well as personnel exchanges with
foreign affiliates. Market access spillovers therefore come from the experi-
ence and knowledge that MNEs have of international marketing, distribu-
tion networks, and lobbying power. As a result of their own operations,
MNEs may therefore pave the way for local firms to enter the same export
markets, either because of the infrastructure created or because of the dis-
semination of information.
The literature on FDI spillovers generally assumes that the positive
effects of MNEs on the production and technological capacity of firms
in the host countries are largely unintended, even if they do indeed arise
from formal interactions and linkages between local firms and MNEs. For
our purposes here, some theoretical limitations of such an assumption are
worth mentioning (see also Padilla-Perez 2006). First, it often confuses
two forms of positive externality arising from the interactions between
co-located firms: linkages (backward, forward and horizontal) coming
from the division of production between firms on the basis either of spe-
cialization or of matching excess demand; and knowledge sharing and
spillovers (where the former is deliberate and the latter are unintentional)
between firms (Kamnungwut and Guy 2012). Second, and related, this
assumption does not take into account any systemic interactions, such as
the relationships between industry structures and resulting interdepend-
encies with institutions and organizations in the location in which pro-
duction and technological capabilities are created. Third, the focus is on
increases in productivity levels as the main and sole output of indigenous
technical change, whereas the outcomes may be more varied (e.g., in terms
of employment, innovation opportunities and overall growth). Fourth,
technical change is treated as an exogenous variable without identifying
its sources such as learning-by-doing, learning-by-using, learning-by-
interacting, or the types and functions of innovation processes, such as
product-, process- or organizational-oriented, as well as adaptive, incre-
mental, radical innovation, etc. Last, but not least, it assumes that technol-
ogy
spills over
freely to everybody, implying no real distinction between
information and knowledge, thereby treating local firms as passive
