THE IMPACT OF TRADE POLICY REGIMES ON FIRMS' LEARNING FOR INNOVATION FROM SUPPLIERS

Abstract

Using data on the textile-based Mauritius export processing zone (MEPZ) collected just prior to the demise of the preferential trade agreement (PTA) with Europe, we compare the acquisition and absorption of innovative technological capabilities (ITCs) of domestic firms and Asian-owned subsidiaries through domestic, Asian and European-based supplier linkages. Our results show that there are significant differences in learning for innovation from suppliers by MEPZ domestic firms and Asian-owned subsidiaries. The study firstly reveals that domestic supplier firms in a developing sub-Saharan African country like Mauritius can be an important source of ITCs to both domestic firms and foreign subsidiaries. Secondly, despite the presence of appropriate policies and institutions, Asian-owned subsidiaries did not fully harness learning opportunities and absorb acquired ITCs through supplier linkages in order to create new technology locally. We conjecture that their learning strategy was dictated by their foreseen exit from the MEPZ due to the anticipated end of the PTA. Thirdly, domestic firms exhibited a higher commitment to the acquisition and absorption of ITCs through supplier linkages and to the development of local ITCs. We infer that their learning strategy is a consequence of their need to continue to thrive and expand post-PTA.