Exploring the relationship between direct and indirect spillovers from FDI in Argentina

RAJNEESH NARULA; ANABEL MARIN

MERIT-Infonomics Research Memorandum Series

Lugar: Maastricht, Holanda; Año: 2005 p. 1 - 41

This paper seeks to examine the paradox that despite the growing role of FDI in most economies and growth in their share of employment, exports and innovation (´direct spillovers´), evidence of technological spillovers to domestic firms in the host economy (´indirect spillovers´) is sparse. Given the explicit dependence of the development strategies of developing countries on FDI after liberalization, it is important for us to ask: Why are these direct spillovers not ocurring? The experienced examined here shows that for the case of Argentina, there are direct spillovers in the form of human capital development and employment. However, there is not significant positive indirect spillovers to non affiliated firms in Argentina. Part of this paradox might be explained by the fact that MNEs have acquired  the most technologically competitive of their domestic rivals, and crowded out others. However, we postulate that there are a variety of other economic reasons why FDI may prove to be less useful as a driver of industrial development than has previously been argued. The extent to which direct spillovers result in indirect spillovers is intermediated by a number of factors, associated with the MNE as the nature of its assets and the organization its global operations; the influence of increased cross-broder competition on the distribution, concentration and competence level of affiliates and domestic firms, and the nature and extent of the absorptive capacity of the domestic sector.