Foreign Firms, Technological Capabilities and Economic Performance

Foreign Firms, Technological Capabilities and Economic Performance

Evidence from Africa, Asia and Latin America

Rajah Rasiah

This book employs novel techniques to compare technological capabilities and economic performance in seven countries at varying stages of industrial development: Brazil, Costa Rica, Indonesia, Kenya, Malaysia, South Africa and Uganda. The author uses a methodology drawn from the technology capability framework, but extensively adapts and simplifies it to extract common cross-industry parameters for statistical analysis. He employs the framework to compare the technological, local sourcing and performance dynamics of foreign and local firms in a variety of industries.

Chapter 2: Productivity, export and technological differences in Kenya

Rajah Rasiah

Subjects: business and management, international business, development studies, development economics, economics and finance, development economics, innovation and technology, innovation policy


Rajah Rasiah and Geoffrey Gachino 2.1 INTRODUCTION Typical of many developing economies, Kenya pursued import-substitution industrialisation since independence in 1963 (Nyong’o, 1988). Although GDP on average grew at over 7.0 per cent per annum in the ‘golden economic period’ of 1965–72, extensive participation of the public sector behind infantindustry protection instruments in final consumer goods without a focus on capability building to face external competition undermined the country’s resources (Coughlin and Ikiara, 1988; Nyong’o, 1988). A number of development finance and industrial training institutions were built to support small and large firms: e.g. Kenya Industrial Training Institute; Kenya Industrial Estates; Industrial and Commercial Development Corporation; Kenya Bureau of Standards; National Council for Science and Technology; and recently Kenya Industrial Property Office (KIPO) (Ikiara, 1988; Enos, 1995). Liberal instruments were introduced to attract foreign direct investment (FDI): e.g. the Foreign Investment Protection Act of 1964 guaranteed foreign investors the right to transfer profits, dividends and capital out of the country. Inward-oriented policies, low wages, raw materials and politically unstable neighbouring economies (e.g. Uganda) helped attract FDI particularly in the 1960s and 1970s (Kaplinsky, 1978). Textiles and garments, and agro-industries became important recipients of FDI in this period (Leys, 1975, 1996; Langdon, 1978; Kaplinsky, 1978), with food processing and beverages becoming most important since the 1980s. In contrast to the 1960s and 1970s, in the 1980s the Kenyan economy slowed down substantially: annual GDP and manufacturing output growth rates dipped from 6.2 per cent and 10.3 per cent respectively...

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