Environmental Engineering Reference
In-Depth Information
Competition e
ff
ects
: except in sectors where there are no indigenous
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rms or where
●
they are o
rms for domes-
tic and export markets. The presence of MNCs may exert pressure on domestic
fi
ff
ered a monopoly status, MNCs will compete with local
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rms to adopt new technology or to utilize existing technology more e
ciently.
Backward linkages
: domestic suppliers of intermediate inputs to MNCs may
capture spillovers through technical training to meet speci
●
cations, as well as
requirements and training to meet global standards. If MNCs purchase a substan-
tial volume of inputs locally, and/or if they help their local suppliers
fi
nd additional
export markets, they may also allow local suppliers to capture economies of scale,
thus increasing productivity and potentially 'crowding in' domestic investment.
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Forward linkages
: MNC-produced goods and services may enter into and increase
the productivity of production processes of
●
rms in upstream and other industries.
The hope is that developing countries will attract 'quality' FDI which - through pos-
itive spillovers - generates a 'virtuous circle' of higher productivity, skills and indus-
try upgrading. However, it is possible that FDI will instead lock developing countries
into non-globally competitive growth paths, or have negative externalities leading to
de-skilling and de-industrialization. Theodore Moran (2006, p. 142) argues:
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FDI in manufacturing and assembly comes in two distinct forms - full-scale plants with cutting-
edge technology and management practices, often export-oriented and integrated into the
supply chain of the parent; and subscale plants protected from international competition with
older technology and management practices and little prospect of becoming competitive in
world markets.
Empirical evidence
Over the past 30 years, a large literature has emerged seeking to determine empirically
whether and in what circumstances FDI generates spillovers for industry upgrading in
developing countries.
Statistical studies searching for horizontal spillovers - that is, increases in the produc-
tivity of domestic competitors to MNCs - have had disappointing results. In a review of
28 studies, a World Bank paper found, once statistical biases were corrected, no instances
of positive horizontal spillovers in developing countries (Gorg and Greenaway, 2003).
Moreover, six studies found evidence of negative spillovers - domestic
rms contracted
or went out of business. In the classic study, Aitken and Harrison (1999) analyzed a panel
of over 4000 manufacturing
fi
rms in Venezuela between 1976 and 1989. They found that
the total factor productivity of local
fi
fi
rms in the same industry dropped in the presence
of MNCs.
2
Case studies present a more optimistic, though still mixed, assessment. Amsden and
Chu (2003) found that partnerships with MNCs in the 1960s and 1970s helped build glob-
ally competitive electronics
rms in Taiwan. China successfully leveraged joint venture
requirements with MNCs in the 1980s and 1990s to build a globally competitive computer
industry (Dussell, 2005). On the other hand, Malaysia, despite large MNC investment in
its electronics sector, 'failed to develop a su
fi
ed and deep industrial struc-
ture, to induce a critical mass of corporate investment in specialized skills and innovative
capabilities' (Ernst, 2003, p. 17). In Trinidad and Tobago, substantial in
ciently diversi
fi
ows of FDI in
the 1990s failed to stimulate domestic development in the natural gas industry (Barclay,
2003).
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