Exporting vs. outsourcing by MNC subsidiaries: which determines FDI spillovers?

Blyde, Juan, Kugler, Maurice and Stein, Ernesto (2004) Exporting vs. outsourcing by MNC subsidiaries: which determines FDI spillovers? (Discussion Papers in Economics and Econometrics, 411) Southampton. University of Southampton

Abstract

Export orientation of multinational corporations (MNCs) has seldom been incorporated in the analysis of spillovers from foreign direct investment (FDI). Also, until recently empirical research dealt mainly with intra-industry spillovers from FDI with restrictive treatment of inter-industry effects. Yet, to the extent that local producers are not in the competitive fringe of MNCs, both spillovers from export oriented subsidiaries and inter-industry spillovers may be more likely. First, when MNCs use the host country as export platform, domestic firms are by and large not competitors to subsidiaries. Then, there would be no incentives to restrict technical information flows. Our results using panel data from Venezuelan manufacturing point to FDI spillovers, mainly between but also within industries, from export-oriented MNCs to large domestic firms. Second, MNCs that outsource have an incentive to transfer technical knowledge to local upstream suppliers. When we allow for spillovers to take place across sectors, we find evidence that backward linkages are a channel of technology diffusion from export-oriented MNCs to domestic manufacturers. Furthermore, small and medium plants do not experience productivity gains ensuing FDI while large domestic producers experience higher productivity growth, suggesting the importance of differences in absorptive capacity.

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