Foreign direct investment, R&D and spillover efficiency: Evidence from Taiwan's manufacturing firms

Abstract

Using Taiwanese firm-level data, we confirm that foreign direct investment and R&D have a positive impact, or spillover effect, on productivity. Furthermore, labour quality, firm size, market structure, and export orientation all affect a firm's productivity. Applying Heckman's [1976] two-stage estimation method, we find that firms self-select into R&D or non-R&D groups. After correcting for this selection bias, we find that foreign direct investment, local technology purchase, and outward foreign investment are substitutes to R&D activity. These results are mainly due to the significant effect of industry-wide technology spillovers. The major policy implications derived from this study are that governments in developing countries may first wish to adopt policies encouraging foreign direct investment to foster technology transfer and industry-wide knowledge spillovers in the short run. However, once the country's technological capability is established it appears critical to switch towards policies that provide a preferred environment to stimulate R&D investment (for example, infrastructure improvement and protection of intellectual property rights) to allow for sustainable economic growth.

Manufacturing FDI and Economic Growth: Evidence from Asian Economies

“…Inward FDI in various sectors are different in nature and volume. For instance, spillover effect of FDI is considered more likely to occur in manufacturing sector than in other sectors and the empirical discussions of spillover effect are often based on FDI in manufacturing industries/sector (Chuang and Lin, 1999;Chuang and Hsu, 2004). It raises interesting questions: does FDI in manufacturing sector have the same impact on growth as FDI in agricultural sector?…”

Knowledge spillovers and new ventures’ export orientation

“…Third, when local employees gain important skills while working for a foreign MNE, a training effect transfers those skills to other organizations (Fosfuri et al 2001). Fourth, foreign entrants may increase local competition by, for example, infusing new technologies into the local market and acting as competitive catalysts (Barrell and Pain 1997;Cantwell 1989;Chuang and Lin 1999;Glass and Saggi 1998). For the purpose of this research, we argue that these different channels of cross-border spillovers may clarify how not only inward FDI but also other sources of knowledge spillovers-such as outward FDI and international trade-influence a country's proportion of exportoriented new ventures.…”

Mergers and Acquisitions in Latin America: Industrial Productivity and Corporate Governance

“…It is calculated as the sum of industry exports and imports, divided by its total production (Chuang and Lin 1999 It is expected that the presence of a trade agreement discourages transnational M&As activity, that is, that its sign is negative, contrary to international trade models. This is because the takeover market is a substitute of international trade.…”