Technological Spillovers from Foreign Direct Investment - A Survey

Publication | December 2002

The spillover effect has been identified as an important channel through which domestic firms benefit from foreign direct investment (FDI). It is also considered an important conduit through which FDI promotes growth in a host country. Realization of this and other benefits arising from FDI has prompted governments to encourage FDI inflow. The increased FDI flows have further stimulated intensive debate and research on the role of FDI on host economies. This paper surveys the substantial literature exploring FDI and spillover effects. Its purpose is to summarize the main findings from previous research, and identify missing aspects in existing studies and essential elements that should be included in future studies. The paper also reviews research on FDI in the People's Republic of China (PRC) alongside the general literature on FDI. Over the last two decades, the PRC has emerged as one of the largest hosts of FDI in the world. Studies on the PRC are particularly useful in illuminating the likely direction of FDI research in developing countries, especially the transition economies.

Contents 

  • Abstract
  • Introduction
  • Theoretical Studies on the Spillover Effect
  • Empirical Studies of Spillover
  • FDI Studies in the PRC
  • FDI and the Spillover Effect: The Remaining Issues
  • Appendix A: Derivation of the Model of Wang and Blomstrom (1992)
  • References