Chapter 5: Multinational Firms and Spillovers: Theoretical, Methodological, and Empirical Issues
5. Multinational ﬁrms and spillovers: theoretical, methodological and empirical issues 5.1 INTRODUCTION In Part II of this book we highlighted the fact that multinational ﬁrms tend to be diﬀerent from non-multinational ﬁrms, both in the home and the host countries. In particular we saw that aﬃliates of foreign multinationals and ﬁrms belonging to domestic multinational groups are larger, exhibit higher productivity, and have a higher propensity for innovation, for carrying out R&D and for engaging in technological cooperation. This has a direct eﬀect on the home and host countries where they operate: average productivity and innovation in a given country increase as the share of activities due to multinationals in the economy rises. This has to do with the fact that multinational ﬁrms bring in a bundle of assets which might not be available locally, such as technologies, market and employment opportunities, capital, and management skills (Barba Navaretti and Venables 2004). This kind of direct eﬀect might be relevant per se, justifying, for example, a signiﬁcant increase in public incentives to attract foreign multinationals which we have witnessed in the last decades both in developed and developing countries (Hanson 2001). However, multinationals also determine signiﬁcant pecuniary and technological externalities aﬀecting the behaviour and performance of other domestic ﬁrms. This occurs through various channels such as: competition, imitation and demonstration, worker mobility and spin-oﬀs, backward and forward linkages, and other forms of inter-ﬁrm cooperation (Blomström and Kokko 1998). In this...
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