Magnus Blomstrom

What is the impact of foreign direct investment (FDI) on development? The answer is important for the lives of millions--if not billions--of workers, families, and communities in the developing world. The answer is crucial for policymakers in developing and developed countries, and in multilateral agencies. This volume gathers together the cutting...

This paper deals with location decisions of manufacturing firms in Spain. We analyse how agglomeration economies and, especially, transport accessibility influence location decisions of firms. During the 1990s there was an intense programme of high capacity road construction which improved accessibility to municipalities. We analyse the location de...

After a review of the literature, we conclude that there is potential for significant “spillover effects” from FDI into host countries. However, we identify some limitations of this potential to do with the stock of human capital, the interest in local firms of promoting skills transfer and the competition environment. We suggest comparing conditio...

This paper suggests that the use of investment incentives focusing exclusively on foreign firms, although motivated in some cases from a theoretical point of view, is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI – spillovers of foreign techno...

As Japan's decade-long economic stagnation continues, there has been much analysis of the immediate macroeconomic problems that confront the Japanese economy. This book looks past the short-run challenges to the future of Japan and highlights the intermediate and longer-term issues that country faces. In this, the first book-length academic treatme...

After a review of the literature, this paper concludes that there is potential for significant “spillover effects” from FDI into host countries. However, it identifies some limitations of this potential to do with the stock of human capital, the interest in local firms of promoting skills transfer and the competition environment. The authors sugges...

This paper analyzes the evolution of industrial competitiveness in Sweden and Finland in a long-term perspective. The first part looks at the foundations for industrial take-off in Sweden, with some focus on the development of institutions for the creation and dissemination of the skills and knowledge needed in the emerging industrial sector. The s...

This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...

Japan's economy stumbled in the 1990s. After four decades of rapid growth that transformed Japan into a wealthy country at the world's technological frontier, the last decade brought prolonged economic stagnation. The rapid run-up in asset prices in the late 1980s, followed by their collapse in the early 1990s, left a debt overhang that paralyzed t...

Japan's economy stumbled in the 1990s. After four decades of rapid growth that transformed Japan into a wealthy country at the world's technological frontier, the last decade brought prolonged economic stagnation. The rapid run-up in asset prices in the late 1980s, followed by their collapse in the early 1990s, left a debt overhang that paralyzed t...

This paper summarises some of the literature on the links between FDI and the transfer and diffusion of technology. We argue that the positive effects of FDI postulated in much of the recent debate are not automatic, that the effects of FDI will vary depending on the host country's characteristics and policies, and that there is a role for economic...

The existence of spillover efficiency benefits to host country economies from inward foreign direct investment (FDI) is well documented in the literature.1 The determinants of the size and scope of the spillover benefits have also been studied, but they are not as clearly and consistently documented as the existence and magnitude of the relevant ex...

Examining detailed data for the home country operations of Swedish multinationals during the period 1986-1994, this paper shows that there are signs of very notable structural changes in the home country operations of these corporations. It also shows that the effects vary according to economic conditions in the home country. In the 1980s, when the...

This paper examines how inward and outward foreign direct investment (FDI) have influenced the restructuring of the Japanese economy and can be expected to continue to do so in the future. We find that outward investment has helped Japanese firms to sustain foreign market shares and contributed to the restructuring of the Japanese economy away from...

Within Japanese multinational firms, parent exports from Japan to a foreign region are positively related to production in that region by affiliates of that parent, given the parent's home production in Japan and the region's size and income level. This relationship is similar to that found for Swedish and U.S. multinationals in parallel studies. A...

This paper reviews and synthesizes the available literature focusing on the determinants of efficiency spillovers from inward FDI. In order to do so, we outline a theoretical framework for understanding the underlying 'supply' and 'demand' forces determining the scope and magnitude of FDI spillovers to host economies. The findings suggest that the...

Outward investment is a way of maximising the rents on the accu-mulated knowledge and skill of a country's firms, or preserving them as long as possible when the country itself has lost its comparative advantage in its industries. This paper examines the internationalisa-tion of Swedish firms and investigates the type of operations they move abroad...

In the backwash of the debt financing of the 1970s and the world-wide recession of the early 1980s, many developing countries, particularly in Latin America, ran into serious debt-servicing difficulties. To cope with this debt crisis, radical policy changes were introduced. These ‘structural adjustment programmes’ generally included deregulation an...

In the debate on the role of multinational corporations in international technology transfer, it has often been suggested that a large share of the host countries’ benefits from foreign direct investment may come in the form of external effects or ‘spillovers’. MNCs may, for example, introduce new technologies that are imitated by local producers,...

Multinational firms may initiate affiliate activities abroad in two different ways; either by building a new establishment (greenfield investment) or by taking over an already existing firm (acquisition).The two methods can be expected to yield different costs and benefits for the host economy. Some argue, for example, that acquisitions have few po...

There are numerous case studies to suggest that technology spillovers from foreign direct investment may provide important benefits for the host countries of multinational corporations (MNCs) (see Chapter 8). The technology and productivity of local firms may improve as foreign firms enter the market and demonstrate new technologies, provide techni...

Over the years, we have witnessed an increasing desire in a number of developing countries to exercise greater control over the activities of multinational corporations. Many countries have started to frame the environment within which these firms operate and have introduced various performance requirements for their behaviour. Special attention ha...

The debate on the role of government policies for economic performance has, in recent years, turned from discussing the choice between free markets and government intervention to asking what types of intervention are good or bad. One reason is that almost all governments, irrespective of their political orientation, have chosen to play an active ro...

The role of technical progress as a key to economic growth is widely recognized today. New technologies can be developed domestically through investments in research and development (R&D), they can be imported in various ways from abroad, or generated through some combination of the two. Since R&D activities are normally very costly, many countries...

The predominant view in the literature on foreign direct investment is that various types of spillover may provide important benefits for the countries that host foreign multinational corporations. For example, numerous case studies have shown that the technology and productivity of local firms may improve as foreign firms enter the market and demo...

The fact that multinational companies do not undertake all their research and development activities at home has become a matter of recent concern, both in the home and host countries of these companies. Some empirical work has been done on the question of why MNCs decentralize their R&D activities (see Mansfield et al, 1979; Lall, 1979a; Håkansson...

Since the 1960s the developing countries have had very different experiences regarding income and productivity growth, and the extent to which they have converged on developed countries. Some, such as the Asian newly-industrialized countries (NICs), clearly are in a process of rapid convergence, whereas others, such as most countries in Africa, sho...

In Chapter 13, we examined aggregated data on the technology imports of US affiliates in thirty-three host countries, and found some weak support for the hypotheses proposed by Wang and Blomström (1992). Our results showed that the affiliates’ technology imports were positively related to the income level of the host country and (crude proxies for)...

International trade has always been an important aspect of economic development and there has been an increasing emphasis on trade as a mechanism for promoting economic growth. In almost every year since the end of the 1940s, the volume of international trade has grown faster than the volume of world production and, as a result, the degree of inter...

The operations of multinational corporations continue to stir strong emotions, both in the home countries and abroad. In the major home countries, the debate on foreign direct investment has ranged from worries that outward FDI may substitute for domestic investment and erode technology leadership, to the argument that firms must invest abroad in o...

This paper investigates empirically the importance of technological catch-up in explaining productivity growth in a sample of countries since the 1960s. New proxies for a country's absorptive capability--based on data for students studying abroad, telecommunications and publications--are tested in regression models. The results indicate that absorp...

Outward investment is a way of maximizing the rents on the accumulated knowledge and skill of a country�s firms, or preserving them as long as possible when the country itself has lost its comparative advantage in their industries, and the industries, or parts of them must relocate. This paper examines the internationalization of Swedish firms and...

The existence of spillover efficiency benefits to host country economies from inward foreign direct investment (FDI) are well documented in the literature, particularly for economically developed host economies. The determinants of the size and scope of the spillover benefits have also been studied, but they are not as clearly and consistently docu...

It is a cliché to say that we live in a globalized world in which investment flows. Communications, and the operations of multinationals from all parts of the world have changed the character of the international business environment. But they say the concept of globalization poses as many questions as it answers, and it is the purpose of this book...

This paper examines the long-run relationship between outward foreign direct investment (FDI) and total factor productivity for a sample of 33 developing countries over the period 1980-2005. Using panel cointegration techniques, we find that: (i) outward FDI has, on average, a positive long-run effect on total factor productivity in developing coun...

This paper studies the locational determinants of foreign direct invest-ment FDI by Japanese manufacturing rms in seven Asian countries by utilizing the 1993 survey data. I show that diierent size-groups of rms re-act to diierent factors in the host country in making the foreign investment decisions. Low labor cost and suucient infrastructure encou...

This paper examines the effects on technology transfer and spillovers deriving from ownership sharing of foreign multinational affiliates. More specifically, we try to answer two questions, using unpublished Indonesian micro data. Firstly, do establishments with minority and majority ownership differ in terms of productivity levels? Secondly, does...

This paper examines the relationship between regional economic integration and FDI in North America, where two RIAs have been established over the past decade: a bilateral free trade agreement between Canada and the U.S. (CUSTA) and a trilateral agreement (NAFTA) incorporating Mexico as well. The North American experiences suggest substantially mor...

This paper examines spillover effects of the activities of multinational firms. Such effects are most likely to be found in host countries, where the operations of foreign multinationals may influence local firms in the MNCs own industry as well as firms in other industries. However, there is no comprehensive evidence on the exact nature or magnitu...

This paper examines spillover effects of the activities of multinational firms. Such effects are most likely to be found in host countries, where the operations of foreign multinationals may influence local firms in the MNCs own industry as well as firms in other industries. However, there is no comprehensive evidence on the exact nature or magnitu...

Economic theory provides two approaches to studying the effects of foreign direct investment (FDI) on host countries. One is rooted in the standard theory of international trade and dates back to MacDougall (1960).This is a partial equilibrium comparative-static approach intended to examine how marginal increments in investment from abroad are dist...

Growth and structural transformation of the manufacturing sector in developing countries are sometimes considered to be the result of the expansion of the ''modern'' (large-scale) sector relative to the ''traditional'' (small-scale) sector. Examining the sources of labor productivity growth in Mexican manufacturing, however, does not provide suppor...

This paper deals with the investment effects of regional integration agreements and discusses how such arrangements may affect inward and outward foreign direct investment flows in the integrating region. After setting up a conceptual framework for the analysis, we provide three studies focusing on different kinds of regional integration: North-Nor...

The authors discuss how regional investment agreements may affect the inward and outward flows of foreign direct investments in the integrating region. After describing the multidimensional character of the issue, they provide a conceptual framework for analysis as well as three case studies focused on different kinds of regional integration: (1) N...

Foreign direct investment may promote economic development by helping to improve productivity growth and exports in the multinationals'host countries, the authors conclude, after reviewing the empirical evidence. But the exact relationship between foreign multinational corporations and their host economies seems to vary between industries and count...

The authors compare the relation between foreign affiliate production and parent employment in U.S. manufacturing multinationals with that in Swedish firms. U.S. multinationals appear to have allocated some of their more labor-intensive operations selling in world markets to affiliates in developing countries, reducing the labor intensity in their...

This paper examines shares of fixed capital formation in GOP and rates of economic growth for more than 100 countries over successive 5-year periods between 1965 and 1985 to determine the direction of causality between them. Simple regressions and multiple regressions including several standard determinants of growth, as well as a simple causality...

This paper reviews the empirical evidence on host country effects of foreign direct investment. The focus of the paper lies on the transfer and diffusion of technology from foreign multinationals to their host countries, the impact of foreign MNCs for the trade performance of host countries, and the effects on competition and industry structure in...

Internationalized production, that is, production by multinational firms outside their home countries has increased over the last two decades, but it was still, in 1990, only about 7 per cent of world output. The share was higher, at 15 per cent in "industry", including manufacturing, trade, construction, and public utilities, but it was negligible...

This paper examines whether rivalry in host country markets may force multinational films to increase the technology transfer to their foreign affiliates. Such technology flows should be interesting from the perspective of the host country and its firms, since they would increase the potential for "spillovers". Using detailed (unpublished) industry...

I present a structural empirical model of collective household labour supply that includes the non-participation decision. I specify a simultaneous model for hours, participation and wages of husband and wife. I discuss the problems of identification and statistical coherency that arise in the application of the collective household labour supply m...

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

Among developing countries, there was no gross relationship between real income per capita in 1960 and subsequent growth in per capita income. However, once other significant influences, such as education, changes in labor force participation rates, inflows of foreign investment, price structures, and fixed investment ratios are taken into account,...

This comprehensive study is a collection of original articles that view the current state of knowledge of the convergence hypothesis. The hypothesis asserts that at least since the Second World War, and perhaps for a considerable period before that, the group of industrial countries was growing increasingly homogeneous in terms of levels of product...

Host Country Competition, Labor Skills, and Technology Transfer by Multinationals. — This paper examines the impact of local competition and the availability of skilled labor on the technology imports of foreign MNC affiliates in Mexican manufacturing industries. The authors find that proxies for local competition and labor skills are positively re...

This paper examines two broad issues related to foreign investment by Swedish multinationals: first the effects of outward foreign direct investment on domestic investment, exports, and employment, and second, the effects on the domestic economy from the increasing division of labor between the parents and foreign affiliates of Swedish MNCs. The pa...

This paper compares U.S.-owned affiliates with other firms in developing countries with respect to the shifts in sales from home to export markets in response to the debt crisis of the early 1980s. The U.S. affiliates in heavily indebted countries increased their exports and the share of their production exported more rapidly than other firms did a...

Examines the export growth of five heavily indebted Latin American countries for which data on US multinationals' trade is available, and compares them with a less heavily indebted group of Asian countries for which we also have MNC data. The years 1977-1982 are taken to represent the period before the debt crisis and periods after 1982 to represen...

Analyses of international competitiveness and comparative advantage focus on the characteristics and behaviour of countries. They generally assign the responsibility for changes in countries’ competitiveness to macroeconomic developments and for changes in comparative advantage to changes in factor abundance and factor prices, to industry productiv...

This paper develops a model in which international technology transfer through foreign direct investment emerges as an endogenized equilibrium phenomenon, resulting from the strategic interaction between subsidiaries of multinational corporations and host country firms. The model explicitly recognizes two types of costs -- the costs to the multinat...

I present a structural empirical model of collective household labour supply that includes the non-participation decision. I specify a simultaneous model for hours, participation and wages of husband and wife. I discuss the problems of identification and statistical coherency that arise in the application of the collective household labour supply m...

This paper uses a model of dichotomous choice to distinguish the characteristics of Swedish multinational firms that seek out joint ventures from those that do not. The findings suggest that firms with little experience of foreign production and highly diversified product lines are the most likely to share equity. In general, it is found that multi...

One tradition in international economics explains international trade as a phenomenon caused by differing national comparative advantages arising from different states of development. This approach leads to the conclusion that under a catching-up hypothesis the amount of trade might be expected to diminish over time. The authors analyse trade betwe...

The participation of U.S. service industry firms in Latin American markets for services consists mainly of the activities of U.S.-owned affiliates operating in Latin America and very little of direct exports of ser- vices from the U.S. The important policy issues thus involve barriers to the establishment and operation of affiliates in host countri...

The participation of US service industry firms in Latin America markets for services consists mainly of the activities of US-owned affiliates operating in Latin America and very little of direct exports of services from the United States. The important policy issues, thus, involve barriers to the establishment and operation of affiliates in host co...

While the U.S. and Sweden both lost more than 20 percent of their shares of world and developed countries’ exports of manufactures between the mid-1960s and mid-1980s, the export shares of their multinational firms stayed fairly stable or even increased. The multinationals raised the proportion of their worldwide exports that they supplied from the...

This paper examines the impact of the operations of foreign-owned multinational firms on the productivity growth of Mexican manufacturing industries, 1965-1984. It investigates both the extent to which the penetration of a sector by foreign-owned firms affects the productivity of local firms in that sector and whether there is any evidence of conve...

Globalisierung' lautet das Schlagwort, das seit geraumer Zeit die wirtschaftspolitischen Debatten beherrscht. Zun�chst war damit vor allem die �ffnung von nationalen G�terund Finanzm�rkten gemeint, die mit einem enormen Wachstum der G�terexporte und internationalen Finanztransaktionen einherging. Die Mobilit�t des Kapitals hat nicht nur in der fina...

Multinational firms have played an important role in leading the developing countries into world markets. Multinationals from the United States, Japan and Sweden have all increased their shares of LDC exports of manufactures since the mid-1960s or mid-1970s. Their importance was particularly notable in Latin America, while their role in the Asian N...

This paper examines labor productivity differences between foreign and domestic firms in Mexican manufacturing industries. Controlling for differences in capital intensity, labor quality, scale, and concentration, we find that foreign affiliates are significantly more productive than are their Mexican counterparts. This suggests that multinational...

This paper examines how foreign direct investment influences market concentration in Mexican manufacturing industries. The results suggest that MNC presence has a positive influence on concentration independently of the industrial variables which are commonly thought to determine it. Several tentative explanations, including the MNCs' market conduc...

Examines whether the relative performance of firms within Mexican manufacturing industries varies systematically with the presence of foreign subsidiaries. It also analyzes how foreign entry influences the technological structure in host country industries. The findings suggest that 1) foreign presence in an industry is positively correlated with s...

This paper examines the importance of firm size in explaining foreign direct investment with data from American and Swedish firms. The results suggest that firm size only has a threshold effect on foreign investment, an effect on the decision to invest abroad. Once, however, a firm has jumped the initial barriers to foreign production, size has no...

Presents an outline of the growth of development theory from a Third World perspective. The hypothesis is that the traditional and still far from abandoned thinking on development is based on experiences which are specific to the Western world and that the claim to universal validity must therefore be repudiated. A secondary purpose is to account f...

In this paper we consider the question whether differences in technical efficiency of Mexican plants in part derive from spillover efficiency associated with foreign direct investment. We use labour productivity as a measure of technical efficiency, and relate this to capital intensity, labour quality and scale of production. We measure the degree...

This paper summarizes and reflects on seven important papers analyzing recent changes in important Japanese institutions. It addresses the origin, development, and recent adaptation of core institutions, including financial institutions, corporate governance, lifetime employment, and the amakudari system. To place current institutional changes in p...

In this timely volume emanating from the National Bureau of Economic Research's program in international economics, leading economists address recent developments in three important areas. The first section of the book focuses on international comparisons of output and prices, and includes papers that present new measures of product market integrat...

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