Predicting the determination and performance impact of absorptive capacity in China's SEZ prospects in Zambia and Mauritius

Abstract

This paper explores the underlying dimensions of absorptive capacity and its impact on the performance for firms in Zambia and Mauritius. It first defines a firm's capacity to absorb spillovers as a latent variable observable indirectly through its underlying dimensions. By means of structural equation modelling based on survey datasets collected within small and medium manufacturing enterprises expecting to engage in special economic zone activities, it investigated the impact of absorptive capacity and its correlation with the performance of firms. Three dimensions that correlated to firm characteristics (technology, networks, and human factors) were found to reflect absorptive capacity. Importantly, it also found that absorptive capacity mediated the relationship between firm characteristics and firm performance to only a moderate degree. In terms of policy implications, if high absorptive capacity is a precondition for effectively reaping external spillovers, this paper's findings suggest that exploitation of SEZ–induced spillovers could likely be limited unless local governments take action to strengthen the absorptive capacity of firms.