FDI Spillovers, Absorptive Capacities and Human Capital Development: Evidence from Argentina

Rajneesh Narula, Anabel Marin

    Research output: Working paperResearch

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    It is nowadays generally accepted that inward foreign direct investment (FDI) is crucial as a source of technological spillovers. One of the objectives of this paper is to review the evidence on the quantity and quality of human capital employed by domestic and foreign firms. We examine whether spillovers accrue from MNE activity, and provide a preliminary understanding of why MNE spillovers remain somewhat ambiguous, particularly in developing countries, paying particular attention to human capital development. Our analysis is supported by data from the Innovation Survey in Argentina. On the whole, MNE subsidiaries hired more professionals than domestic firms of the same size, possessed a more skilled labour force overall, and spent more on training than similar domestic firms. Subsidiaries in Argentina effectively have a higher labour productivity and pay higher wages. Yet, in terms of knowledge creation and utilisation, there was little to differentiate affiliates from domestic firms. While there is little evidence of widespread FDI spillovers, where spillovers did occur, it was where domestic firms demonstrated high investment in absorptive capacities. Our analysis also suggests that much of MNE activity - particularly after liberalisation - has been of the kind that by definition has limited opportunities for linkages and spillovers. These are activities in which MNEs may simply be able to generate economic rent from their superior knowledge of markets, and their ability to efficiently utilise their multinational network of affiliates. These assets are not generally easily spilled over to domestic firms.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherDepartment of International Economics and Management, Copenhagen Business School
    Number of pages52
    Publication statusPublished - 2003
    SeriesWorking Paper / Department of International Economics and Management, Copenhagen Business School

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