FDI and world heterogeneities: The role of absorptive capacities

Thumbnail Image
Official URL
Full text at PDC
Publication Date
Advisors (or tutors)
Journal Title
Journal ISSN
Volume Title
Instituto Complutense de Estudios Internacionales (ICEI)
Google Scholar
Research Projects
Organizational Units
Journal Issue
It is generally agreed that foreign direct investment (FDI) flows can contribute to the local upgrading of host economies, whereas the diverse technological strategies of multinational companies (MNCs) can determine the existence and size of spillover effects. When considering FDI entry modes, merger and acquisitions (M&As) reveal a higher level of interaction with local productive systems than general FDI. Accordingly, their impacts may differ depending on the development level of countries and on the characteristics of national systems. Our aim is to exam the relative importance of local determinants explaining different choices of FDI entry. We explore both the strengths of the traditional explanation of FDI flows as well as the relevance of institutional stability and consolidation of national absorptive capabilities; the latter are considered key features of national systems. Our findings confirm that the factors at a country level affecting general FDI differ from those concerning cross-border M&As and support the need to investigate new drivers for attraction of FDI. Structural factors explain better the behaviour of FDI, whereas the factors of national systems of innovation are more closely correlated with the cross-border M&As trend. Finally, although international inequalities persist when both developed and developing countries are considered, it is interesting to note the importance of the heterogeneity that characterises the developing world as a topic for further research.
El propósito en este trabajo es examinar la importancia relativa de los determinantes locales que explican las diversas opciones de entrada de las empresas multinacionales. En el análisis se trata de contrastar cuál es el peso de los factores predominantes en las explicaciones económicas más convencionales, así como el efecto de la estabilidad institucional y el grado de consolidación de las capacidades nacionales de absorción. Los resultados nos permiten confirmar que los factores condicionantes de los flujos de IDE en general, difieren de los que atañen a las fusiones y adquisiciones transfronterizas, lo que justifica la necesidad de explorar nuevos elementos de atracción de IDE. Mientras que los factores estructurales explican bien el comportamiento de la IDE en general, los factores relacionados con los sistemas nacionales de innovación están más estrechamente relacionados con las fusiones y adquisiciones. Finalmente, aunque las desigualdades internacionales persisten al analizar conjuntamente países desarrollados y en desarrollo, tiene una especial relevancia la heterogeneidad que caracteriza al mundo en desarrollo para futuras investigaciones.
UCM subjects
Aitken, B.J., Harrisson, A.E., (1999) “Do domestic firms benefit from FDI? Evidence from Venezuela”, American Economic Review 89 (3), 605–618. Álvarez, I., Magaña, G. (2007) “Technological development in middle-income countries”, in J.A. Alonso (ed.), Cooperation with Middle-income Countries, Ed. Complutense, Madrid, pp. 339-369. Álvarez, I., Molero, J. (2005) “Technology and the generation of international spillovers: an application to Spanish manufacturing firms”, Research Policy, 34, 1440-1452. Archibugi, D., Michie, J. (1995) “The globalisation of technology: A new taxonomy”, Cambridge Journal of Economics, 19, 121-140. Arellano, M., Bond, S.R. (1991) “Some tests of specification for panel data”, Journal of Econometrics, 59, 87– 97. Arellano, M., Bover, O. (1995) “Another look at the instrumental variables estimation of error components models”, Journal of Econometrics 68, 29–51. Blomström, M., Kokko, A. (1998) “Multinational corporations and spillovers”, Journal of Economics Surveys, 12(2), 1-31. Blonigen, B., Taylor, C. (2000) “R&D activity and acquisitions in High Technology Industries: evidence from the US Electronics Industry”, Journal of Industrial Economics, 47(1), 47-71. Blundell, R.W., Bond, S.R. (1998) “Initial conditions and moment restrictions in dynamic panel models”, Journal of Econometrics, 87, 115–143. Borensztein, E., De Gregrio, J., Lee, J.W. (1998) “How does FDI affect economic growth?”, Journal of International Economics, 4 (1), 115-135 Brouthers, K.D., Brouthers, L.E. (2000) “Acquisition or greenfield start-up? Institutional, cultural and transaction cost influences”, Strategic Management Journal, 21, 89-97. Cantwell, J., Mudambi, R. (2005) “MNE competence-creating subsidiary mandates”, Strategic Management Journal, 26 (12), 1109-1128. Cantwell, J., Piscitello, L. (2002) “The location of technological activities of MNCs in European Regions: The role of spillovers and local competencies”, Journal of International Management, 8(1), 69-96. Cantwell, J., Santangelo, G. (2002) “M&As and the global strategies of TNCs”, The Developing Economies, XL (4), 400-434. Chang, S. J., Rosenweig, P. M. (2001) “The choice of entry mode in sequential foreign direct investment”, Strategic Management Journal, 22(8), 747-776. Cohen, W.M., Levinthal, D.A. (1990) “Absorptive capacity: a new perspective on learning and innovation”, Administrative Science Quarterly, 35, 128-152. Danzon, P., Epstein, A., Nicholson, S. (2004) “Mergers and Acquisitions in the Pharmaceutical and Biotech Industries”, NBER Working Papers, 10536. National Bureau of Economic Research. Dunning, J.H. (2006) “Towards a paradigm of development: implications for the determinants of international business activity”, Transnational Corporations, 15(1), 173-227. Dunning, J.H., Narula, R. (1994) “The R&D activities of foreign firms in the US”, Discussion Papers in International Investment & Business Studies, 189, University of Reading. Dunning, J.H., Narula, R. (eds.) (1996) Foreign Direct Investment and Governments: Catalysts for Economic Restructuring, Routledge, London. Globerman, S., Shapiro, D. (2002) “Global foreign direct investment flows: the role of governance infrastructure”, World Development, 30(11), 1899-1919. Kang, N., Johansson, S. (2000), “Cross-border Mergers and Acquisitions: Their Role in Industrial Globalisation”, Working Paper STI DST1/DOC, OECD, Paris. Kogut, B., Singh, H. (1988) “The effect of national culture on the choice of entry mode”, Journal of International Business Studies, 19(3), 411-432. Kokko, A. (1992) FDI, host country characteristics and spillovers, The Economic Research Institute, Stockholm School of Economics. Kuemmerle, W. (1999) “Foreign direct investment in industrial research in the pharmaceutical and electronics industries: results from a survey of multinational firms”, Research Policy, 28(2-3), 179-193 Lall, S. (1996) Learning from the Asian Tigers. Macmillan, London. Lall S. (2002) “Implications of Cross-Border Mergers and Acquisitions by TNCs in Developing Countries: A Beginners’ Guide”, QEH Working Paper No. 88. Mortimore, M., Vergara, S. (2004) “Targeting winners: can foreign direct investment policy help developing countries industrialise?”, The European Journal of Development Research, 16(3), 499-530. Mudambi, R. (1995) “The MNE investment location decision: some empirical evidence”, Managerial and Decision Economics, 16, 249-257. Narula, R. (1996) Multinational Investments and Economic Structure, Routledge, London. Narula, R. (2004) “R&D collaboration by SMEs: new opportunities and limitations in the face of globalisation”, Technovation, 24, 153-161. Narula, R., Criscuolo, P., Verspagen, B. (2002) “The relative importance of home and host innovation systems in the internationalisation of MNE R&D: a patent citation analysis”, Merit Memorandum MERIT RM 2002-26. Narula, R., Lall, S. (2004) “FDI and its role in economic development: Do we need a new agenda?”, The European Journal of Development Research, 16(3), 447–464. Narula, R., Dunning, J.H. (2000) “Industrial development, globalisation and multinational enterprises: new realities for developing countries”, Oxford Development Studies, 28(2), 141-167 OECD (2001) New Patterns of Industrial Globalisation. Cross-border Mergers and Acquisitions and Strategic Alliances, OECD, Paris. OECD (2002) Foreign Direct Investment for Development, OECD, París. Pearce, R. (1999) “Decentralised R&D and strategic competitiveness: globalised approaches to generation and use of technology in multinational enterprises (MNEs)”, Research Policy, 28, 157-178. Pearce, R. (2006) “Globalization and development: an international business strategy approach”, Transnational Corporations, 15(1), 39-74. Perez, T (1998) Multinational enterprises and technological spillovers, Harwood Pub., Amsterdam Petit, M., Sanna-Randaccio, F. (2000) “Endogenous R&D and foreign direct investment in international oligopolies”, International Journal of Industrial Organisation, 18, 339-367. Sanna-Randaccio, F. (2002) “The impact of foreign direct investment on home and host countries with endogenous R&D”, Review of International Economics, 10(2), 278-298. Sanna-Randaccio,F., Veugelers, R. (2007) “Multinational knowledge spillovers with decentralised R&D: a game-theoretic approach”, Journal of International Business Studies, 38(1), 47-63. Shimizu, K.; Hitt, M.A.; Vaidyanath, D.; Pisano, V. (2004) “Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future”, Journal of International Management, 10, 307-355. Siotis, G. (1999) “Foreign direct investment strategies and firms’ capabilities”, Journal of Economics & Management Strategy, 8(2), 251-270. UNCTAD (2000) Cross-border M&As in Crisis-affected Asia: Implications for Developing Host Economies, UNCTAD: Geneva. UNCTAD (2003) FDI Policies for Development: National and International Perspectives. UNCTAD: Geneva. UNCTAD (2005) World Investment Report Transnational Corporations and the Internationalization of R&D, United Nations, New York and Geneva. UNCTAD (2007) World Investment Report Transnational Corporations, Extractive Industries and development, United Nations, New York and Geneva. Xu, B. (2000) “Multinational enterprises, technology diffusion, and host country productivity growth”, Journal of Development Economics, 62, 477-493.