Technology spillovers: Kenya and Malaysia compared

Transmission channels matter: Identifying spillovers from FDI

“…That is, firms with a small technological gap are better at identifying and exploiting the introduction of new technological opportunities associated with the presence of FDI into the local market. This evidence is consistent with that obtained by Kinuthia (2016) for Malaysian firms. In contrast, domestic firms with a relatively large technological gap seem to be hit significantly by the presence of foreign counterparts, or fail to reap spillover benefits from demonstration.…”

“…Notes 1. Recently, Kinuthia (2016) has attempted to provide transmission channels in a comparative context in Kenya and Malaysia. The author, consistent with extant literature, provides estimated coefficients using foreign share alone.…”

“…As part of the demonstration effect argument, proximity is a vital aspect for updating products and production process in SSA countries that may not have many alternative ways for implementing superior technology of foreign firms (Kinuthia 2016). In general, the consensus is that spillovers through geographical proximity in SSA industries, which might have limited competitiveness, are likely to operate due to the demonstration effect and labour pooling, as these channels are easier when local firms are located close to foreign counterparts.…”

“…We model spillover effects within the context of a production framework in which output is a function of capital, labour, and access to technology. With regard to the outcome variable, the empirical literature uses a production function of either a one-step direct approach (see Aitken and Harrison 1999;Mebratie and Bedi 2013;Kinuthia 2016), or a two-step indirect estimation technique (see Waldkirch and Ofosu 2010;Merlevede, Schoors, and Spatareanu 2014;Fatima 2016). The former employs a direct approach to the FDI effect using labour productivity, output or value-added as the dependent variable.…”

“…With regard to the technological gap, we use the ratio of the average productivity of foreign-owned firms in relation to domestic firms own productivity in a given industry and country (see Haddad and Harrison 1993;Haskel, Pereira, and Slaughter 2007;Kinuthia 2016). 10 To split our sample into small and large technological gap, we use a dummy variable that takes the value 1 if the domestic firms' productivity is below the average productivity of foreign firm and 0 otherwise (see Jordaan 2005;Hamida 2013).…”