Foreign Direct Investment Technology Research Articles

India's Smart Cities Mission: The Beginning of Corporate Takeover of the Nation State

Within four months of the announcement of the ‘Smart Cities Mission’ in June 2015, the government of India, on 10th November 2015, has announced a bundle of changes in the foreign direct investment (FDI) rules for 15 sectors -including retail, defense, construction, banking and electronic media . And 100% FDI has been allowed in the ‘management of townships and malls’. This piece tries to narrate. in brief, how, during the last one and a half decades, successive governments have created a conducive atmosphere, by amending and enacting existing and new municipal acts, for direct foreign interventions in Indian cities, the ‘engines of growth’, of the nation. During 17th century the East India Company (EIC) came to do business in India. Eventually they became the ruler of the land. The piece ends with an apprehension of repetition of the same history of corporate takeover of the state power in 21st century. The British legacy continued even after their formal departure. The clientele group, they had created comprising of comprador business class and western educated elites, now look after the interest of the global capital by turning the rural India (Bharat) into an internal colony of modern India. This clientele class now lives and dies for FDI and foreign technology as they have totally lost their traditional knowledge. Smart Cities Mission is just an arrogant statement of these colonial forces and their office bearers.

Fdi technology spillovers in China: Implications for developing countries

Since the 1980s, multinational corporations (MNCs) have increasingly invested in production and service facilities in developing countries. In the meantime, developing countries adopted preferential policies to attract foreign direct investment (FDI) in the hope that FDI can bring in advanced technology. However, FDI is a double-edged sword, generating positive as well as negative technology spillovers. Extant studies focus on the simple issue of whether the presence of FDI affects domestic firms, and have limited policy implications for developing countries. This paper is intended to fill this research gap. Differing from extant studies, the paper tries to identify the individual channels through which positive and negative FDI technology spillovers take place in different entry modes, and draws practical implications for developing countries in making policies on MNC entry modes and investment priorities. The paper distinguishes between different forms of FDI presence, including tangible assets and intangible assets, exported products and domestically sold products, new products and traditional products, employment of skilled workers and employment of unskilled workers, and takes them as different channels by which FDI technology spillovers take place. Meanwhile, the paper distinguishes between wholly foreign owned enterprise and joint venture, and takes the two entry modes as different organizational settings in which FDI technology spillovers occur. The paper then examines how FDI technology spillovers take place through each of these channels under each of the entry modes, and tests hypotheses against firm-level data from China. The study finds that positive FDI technology spillovers take place through tangible rather than intangible assets, domestically sold rather than exported products, traditional rather than new products, and employment of unskilled rather than skilled workers in joint ventures. In contrast, negative FDI technology spillovers take place through exported products and employment of skilled workers in wholly foreign owned enterprises. The findings suggest that developing countries should encourage MNCs to enter their markets in the form of joint ventures rather than wholly foreign owned enterprises. Moreover, they should encourage MNCs to invest in tangible assets, production of domestically-consumed products and traditional products, and employment and training of unskilled local workers in joint ventures. Furthermore, they should help domestic firms overcome the adverse effect of market stealing and skill stealing generated by wholly foreign owned enterprises.

Is FDI Spillover Conditioned on Financial Development and Trade Liberalization: Evidence from UMCs

Developing countries take Foreign Direct Investment (FDI) as leverage for economic growth and development as a result of FDI technology spillovers. However, the effect of FDI inflows on economic growth of host countries is conditional on the abilities of those countries in absorbing and accumulating external knowledge. The related literature paid particular attention to the role of the financial system and trade liberalization of recipients. Thus, this paper investigated empirically the intermediary roles of the financial system and trade liberalization as Absorptive Capacity (AC) factors on the FDI led growth nexus. This study provided data evidence from 33 Upper-Middle-income Countries (UMCs) over the period of 1990–2011 to contribute to the existing literature. This empirical study employed the dynamic panel “difference” GMM estimator proposed by Arellano and Bond (1991); since it prevents the biases inherent to economic growth models including auto-correlation, unobserved heterogeneity, and endogeneity between explanatory variables. The results indicated the development of the domestic financial system facilitated FDI technology spillovers in order to enhance the economic growth of UMCs. However, the empirical findings also showed a negative effect of trade openness on stimulating the FDI spillovers.

The Human Capital Dimension to Foreign Direct Investment: Training, Adverse Selection and Firm Location

While the theoretical literature on Foreign Direct Investment (FDI) focuses largely on movements in capital and firm specific technology, recent empirical evidence emphasizes primarily the local human capital necessary to absorb FDI technology. We examine how human capital affects FDI and add a new dimension to the trade and FDI literature: informational asymmetries. Multinationals (MNCs) must train labor to work with firm specific technology, but employers possess incomplete information about workers' abilities. We integrate an adverse selection model into a general equilibrium framework, and introduce Informational Gains From Trade. Examining the incentives for firm location, we can explain why FDI is more likely to occur among countries that are similar in terms of human capital and technology, and why there is little investment from developing countries in advanced economies. Informational asymmetries coupled with human capital differences give rise to empirical observed multiple wage equilibria, where MNCs pay the highest wage in advanced countries, but higher wages than domestic firms in developing countries. The dynamic analysis highlights the absence of scale effects in the model, driven by the fact that the costs of training workers with fixed human capital will eventually outweigh any benefits from productivity increases generated by research expenditures.

Managing FDI technology spillovers: A challenge to TNCs in emerging markets

Prior studies on foreign direct investment (FDI) technology spillovers have offered little guidance to transnational corporations (TNCs) on how to protect and exploit technology across borders. The present paper argues that TNCs can manage technology spillovers through selection of entry modes, selection of technologies, and selection of investment priorities in the affiliates they establish in foreign markets. A number of hypotheses are derived from theoretical analyses and are tested against firm-level data from China. The findings of the paper have significant implications for TNCs that face fierce competition from local firms in emerging markets.

Double-edged effects of the technology gap and technology spillovers: Evidence from the Chinese industrial sector

Abstract This paper proposes a new insight that the technology gap plays double-edged roles in the technology spillovers of foreign direct investment (FDI) through two channels, technology choice set and technology absorptive capability. Applying a multiple-threshold model, we examine the non-linear relationship between the technology gap and technology spillovers based on the provincial panel data of the Chinese industrial sector during 1993–2006. The empirical results support the hypothesis of two thresholds, which are 0.3071 and 0.5214 in terms of the technology gap respectively. The estimated thresholds indicate the sufficient absorptive capability is the premise for FDI technology spillovers. Moreover, it implies the marginal decrease of FDI technology spillover effects in the long run.