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 7: Productivity, export, local sourcing and technology in Brazil

Rajah Rasiah

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


Rajah Rasiah 7.1 INTRODUCTION Brazil is the largest economy in Latin America and has enjoyed a long history of government support in the development of producer goods industries under import substitution (IS). The large domestic economy, fairly developed science and technology (S&T) infrastructure, ownership regulation and domestic content requirements – the latter two applied varyingly since the 1950s – helped create an industrial structure with strong participation by both foreign and local capital in manufacturing. Empirical and analytical accounts examining the role of FDI in technological capabilities in Brazil are dominated by focus on process equipment R&D capabilities. Government policy instruments are argued to have influenced foreign firms’ participation in R&D activities to access opportunities to sell in the domestic market and incentives. A number of studies have compared technological capabilities of foreign and local firms. Katz (1999), Katz and Bercovich (1993), Lastres and Cassiolato (2000) and Costa (2001) presented empirical evidence to show that foreign firms’ R&D activities are limited to process technology and modification of machinery and equipment. Ariffin and Figueiredo (2003), using a dynamic methodology that locates firms on the basis of differentiation of technological activities in respect of their degree and depth of intensity, showed no difference between foreign and local consumer firms in Manaus, Brazil. This chapter attempts to add to this literature and offer an example of a middle-income economy with some strong high-tech institutions in the development trajectory by examining technological and economic performance differences and relationships using...

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