Geography Reference
In-Depth Information
technological recipients in the process of technology transfer, which in
turn is seen as strictly unidirectional. All these issues point to the critical
importance of introducing specific geographies and spatial structures in
analysing externalities and spillovers, as we will see in Chapter 4.
In his highly cited NBER working paper which reviews the evidence
on the distribution between home and host economy of the benefits and
costs of FDI, Lipsey (2002, p. 1) concludes that 'Much of the impact is
from the transfer of knowledge of world markets and of ways of fitting
into worldwide production networks, not visible in standard productivity
measurements.' Following Hymer's 'correspondence principle', the effects
of MNEs may therefore overall be either beneficial or detrimental in the
sense that they may preserve or even reinforce existing inequalities between
core and peripheral areas,
across and within countries
. A similar argument
is also found in Vernon (1957), who argues that MNEs spur an increas-
ing share of employment in that 'mixed bag of business services' (Vernon
1957, pp. 17‒18) in a large metropolis, thereby stimulating growth, rising
factor prices and also, as a consequence, interregional intra-national dif-
ferences. With an increase in spatial agglomeration at the functional level,
these differences will be evident even if traditional employment in manu-
facturing following the presence of MNEs is likely to expand more equally
between cores and peripheries. Therefore, it may well be that the benefits
from MNE location between the core and the hinterland regions will never
be evenly distributed (Pitelis, 2002b; Tolentino, 2002; Kottaridi, 2005a,
b). The spatial effects are seen here as a direct consequence of MNEs'
locational choices, both in the location of origin and in that of destination.
2.6.2
Multinationals and Economic Development
The search for often unspecified spillovers in the economic literature has
somewhat hidden the effects of MNEs on capabilities development, par-
ticularly in developing economies. One of the most effective applications
of the OLI paradigm has been on development issues, through the concept
of
investment development path
(IDP) (e.g., Dunning 1981, 1988a, 1993,
2001; Dunning and Narula 1996; Narula 1996). The main tenet of the IDP
is that as a country develops, the configuration of the OLI advantages
facing both MNEs and local firms changes, as do their interactions, even-
tually reversing even the ambiguous role of 'home' and 'host' economy.
The IDP identifies various development stages, and also the conditions
providing for the change, and their effects on the path of the country's
development. Such effects take place through three main mechanisms. The
first is via backward linkages of the MNEs with the host economy; that is,
the linkages between domestic firms supplying intermediate inputs or serv-
