Edited by Sanjaya Lall and Shujiro Urata
Chapter 2: Foreign direct investment, technology development and competitiveness: issues and evidence
Sanjaya Lall1 This chapter provides the conceptual and empirical setting for the country studies on foreign direct investment (FDI), local technology development and competitiveness. International competitiveness is more than ever before at the core of industrial success, and it is taking new forms. Trade liberalization is forcing enterprises to face unprecedented global competition in domestic as well as foreign markets. The falling ‘costs of distance’ make this competition more immediate and intense than in the past. Rapid technical change forces producers constantly to upgrade their process technologies and introduce new products. It also changes patterns of trade, with product segments based on research and development (R&D) growing at the expense of less technology-intensive segments. Innovation itself is more costly and often more risky than before, with continuing high concentrations of advanced R&D spending by country and enterprise.2 As a result, there is greater inter-ﬁrm and cross-national collaboration and networking in innovative eﬀort. One important consequence of liberalization and technical change is that technology and capital are far more mobile than before. This allows economic activity to be organized more rationally across national boundaries, with production linked across countries and functions and processes previously located together now separated and placed in far-ﬂung sites to take advantage of ﬁne cost, capability, logistic and market diﬀerences. Some of these changes in location and organization take place under market forces, with independent enterprises linking up in arm’s length contractual relations. Others take place in a hierarchical manner, with...
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