Relationship between fdi and technology

relationship between fdi and technology

To effectively leverage FDI as a means to achieve technology . aims at exploring the relationship between FDI and technology transfer and. Keywords: foreign direct investment, economic growth, technology spillovers, relationship between FDI and economic growth is established. This paper first analyzes the spillover effects of FDI with reference to actual conditions in foreign‐funded enterprises in China, then uses correlation analysis and.

But does this lead to spillover or diffusion of the technology inside the country? Saggi raises the question in a footnote that it may not be reasonable to expect spillovers, since it may be natural for the transnational to prevent spread of their technologies to potential rivals - with a possible exception of diffusion to potential suppliers of inputs or buyers of goods and services sold by the TNC. The potential channels of spillover are: The net effect on incentives for adopting new technologies may indeed be ambiguous.

A point not clearly addressed in the paper is whether WTO-TRIPS and its enforcement enable or inhibit imitating and reverse engineering, though Saggi in an unpublished mimeo appears to suggest that stronger IPRs may have an endogenous decline in imitation by increasing the costs. Overall, says Saggi, several studies have cast doubt on the view that FDI generates positive spillovers for local firms, though this does not imply that host countries have nothing significant to gain from FDI: As for labour turnover, and the technology diffusion that results, Saggi notes that policies designed to encourage technology transfers do not always raise the welfare of recipient countries.

Local competition policy may also effect labour turnover. In many industrialized countries, trade secret laws protect firms against loss of valuable information to their rival firms, though it is difficult to see how such laws can protect against the kind of basic technology diffusion resulting from labour turnover from TNCs in developing countries.

Under most circumstances, TNCs would rather limit diffusion in the local economy. In fact, the whole theory of emergence of TNCs is that such firms are able to compete with local firms precisely because they possess superior technologies, management and marketing. Why then would TNCs not take actions to ensure that such diffusion to local competitors do not take place?

Such actions are of course costly. A difficulty could arise if all potential TNCs benefit from curtailment of technology diffusion, but only one takes legal action. Developing countries hosting TNCs may expect rivalries among such firms to result in some degree of technology diffusion. TNCs can take actions to limit diffusion, and while making their decisions as to where to set up subsidiaries, the expected costs of technology diffusion will enter their calculus of profit maximisation.

relationship between fdi and technology

Saggi cites a study by Elhanan Helpman, providing a detailed welfare analysis of IPRs enforcement in the South, showing that a strengthening of IPRs protection is not in the interest of the South and that imitation in the South may even benefit the North, provided the rate of imitation is not too fast.

Treating stronger IPRs protection as an endogenous decline in imitation due to increased imitation costs stemming from stricter uniqueness requirementsand where Southern imitation targets both TNCs producing in the South and purely Northern firms producing in the North, a study by Amy Glass and Kamal Saggi, finds that FDI decreases with the strengthening of Southern IPRs protection. An increase in the cost of imitation is found to crowd out FDI through tighter Southern resource scarcity.

May not be reproduced, reprinted or posted to any system or service without specific permission from SUNS. This process which can equally allow positive externalities to unaffiliated firms in Nigeria and can in turn increases growth through productivity and efficiency gains by local firms.

Examples of these firms are; fast food restaurants, manufacturing firms, oil and gas, and communication sectors and the banking firms etc. FDI also contributes to economic growth via technology transfer. Trans-nationals companies TNCs can transfer technology either directly internally to their foreign owned enterprises FOE or indirectly externally to domestically owned and controlled firms in the host country [14].

Spillovers of advanced technology from foreign owned enterprises to domestically owned enterprises can take any of four ways: The state of technological capability 2 FDI is one of the strategies for promoting TT in enhancing economic growth and development in developing countries. The prospects for development of the knowledge stocks necessary and sufficient to kick start a sustained industrial revolution is not fully in place now and needs more adoption and adaption of such technologies.

Host countries require minimum human capital, economic stability and liberalized markets in order to benefit from long-term FDI inflows. So, domestic economic activities are crucial in attracting foreign investment. A level of human capital and infrastructural baseline is a prerequisite in attracting FDI. Investment in critical sectors like electricity, human capital, financial services, political stability, roads and security are germane to attracting FDI and economic growth in Nigeria.

Export promoting trade regimes openness are also important prerequisites for positive FDI impact to reduce technological gap existing between developed and undeveloped countries [17]. They had earlier found significant results supporting the assumption that FDI is more important for economic growth in export - promoting than import-substituting countries. This implies that the impact of FDI varies across countries and that trade policy can affect the role of FDI in economic growth.

The pace of technological change in the economy as a whole will depend on the innovative and social capabilities of the host country with the absorptive capacity of other enterprises in the country. Other than the capital augmenting element, some economists see FDI as having a direct impact on trade in goods and services.

Trade theory expects FDI inflows to result in improved competitiveness of host countries' exports [15]. Dutse reported that the role of FDI in technology transfer and economic growth in Nigeria are for the reasons summarized as follows: Facilitating Technology Spillover; FDI spillovers may occur in Nigeria through a variety of activities, including labour and management training, technological copying, demonstration, direct licensing of technology, and vertical linkages in the production and distribution value chains.

It forces local firms to innovate to remain competitive by increasing competition in the host country market.

FDI, TNC-spread don't necessarily lead to technology transfer

Allowing Technology Adoption; OECD [21] reported that FDI may further lead to technology adoption by Nigerian firms through establishing linkages with domestic firms via subcontracting and other mechanisms. By implication Nigerian firms may adopt technologies introduced by foreign firms through imitation, reverse engineering, or vertical linkages.

Developing Local Human Capital; there exist some empirical evidence that affiliates of foreign firms tend to provide training and learning than those domestic enterprises [18]. Foreign direct investment can enhance transfer of technology communications through training and on-the-job learning. Physical movement of workers, the human capital e. TT helps to cover the needed gap between developed and underdeveloped.

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We choose the OLS because the response variable GDP is continuous and its reaction to the explanatory variables will be well approximated by a linear regression equation [23]. Graphs were also used to show the economic dynamics and basis for our qualitative discursions. Critical study period is from to Secondary data used were sourced from [24] and [25]. Keynes open macroeconomic model was adopted to augment the impact of domestic and foreign variable to make vivid their effect on economic growth in Nigeria.

The four sector economic model explains if not all the determinants of economic performance of a country. The need to examine the correlation characteristics of the variables is germane to ascertain the interrelations. Below is the correlation characteristic of variable to ascertain how they relates.

Below is the estimate of the regression results in Table 4. A change in the degree of openness and exchange rate showed contrary result as they negatively relates to GDP. This is in line with our earlier correlation hunch about openness. On the domestic scene, a unit increase in domestic investment DI causes 6.

Also, on the average, one unit increase in human capital causes 47 units increase in GDP. Technology transfer TT favours economic growth but international channels of TT are not favouring economic growth because the degree of openness is not a favourable. Meanwhile, channels like University Industry U-I TT that takes intellectual properties to the market will propel economic growth. However, as macroeconomic activities increases, there is need for deliberate effort to increase human capital investment and good foreign policies to make the foreign investment more favourable to economic growth in the country.

Hence, an appropriate economic policy should concentrate on strengthening these processes throughout the country and ease the flow of information and technology between the various actors and stakeholders within the national system of invocation such as — innovators, tertiary institutions, companies, state agencies and financial institutions.

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UNU-WIDER : Working Paper : The Causal Relationship between ICT and FDI

University of Lagos, Nigeria; Where is the Technological Capability? Retrieved from Science and Development Network, www. Inadequate skilled manpower cripples industrialisation in Nigeria. UBA next community; Increasing Returns and Long Run Growth. Journal of Political Economy. On the Mechanics of Economic Development.

relationship between fdi and technology

Journal of Monetary Economics. Technology Transfer and Spillovers: Does Local Participation with Multinationals Matter? Blomstrom M, Kokko A. Multinational corporations and spillovers. Journal of Economic Surveys. Bengos M, Sanchez-Robles B.