Social structure and technology spillovers from foreign to domestic firms

Abstract

Do domestic firms benefit from the presence of foreign multinational firms? The FDI spillovers literature addresses this very issue, primarily examining whether the presence of foreign firms in a host market leads to technology spillovers and upgrading in domestic firms. A key finding is that spillovers depend on the absorptive capacity of the domestic firm. Yet, in conceptualizing absorptive capacity, scholars have largely overlooked how social structure shapes it. Integrating insights from social networks, technology upgrading, and innovation literatures, I emphasize that a domestic firm's ability to absorb spillovers depends on the social structure it is embedded in. I argue that ties with foreign firms reduce the constraints that domestic firms usually face in searching for and transferring in foreign technologies. However, while search benefits from sparse network structures, transfer is facilitated by cohesive ones. Also, while affect-based ties might motivate foreign firms sufficiently to share information with domestic firms at the search stage, reciprocal benefits and social monitoring conferred by common third-party ties are necessary in the transfer stage. Any effect of ties also depends on the routine repertoire of domestic firms. Put together, these arguments offer a more socialized account of the spillover process.