Chapter 6: In Search of Horizontal Spillovers from Multinationals: The Role of Firms’ Heterogeneity
6. In search of horizontal spillovers from multinationals: the role of ﬁrms’ heterogeneity 6.1 INTRODUCTION In the previous chapter we stressed that most recent works did not ﬁnd any sound evidence of positive intra-industry spillovers. The main theoretical explanation to these results is that multinational ﬁrms have strong incentives to prevent information leakages and have very few incentives to transfer part of their knowledge to their competitors in the host country. Furthermore, they may well push domestic ﬁrms out of the market by stealing their market share and by forcing them to produce at higher unit costs. Under these conditions, negative competition eﬀects tend to outweigh positive externalities from the activities of foreign multinationals in the host country. However, we have also noted that a closer look at the empirical evidence reveals that positive horizontal spillovers from foreign aﬃliates of multinational ﬁrms to host country ﬁrms do occur under speciﬁc circumstances. In particular, a large literature has focused on the role of technology gaps and absorptive capacity in facilitating such positive externalities. In a nutshell, the technology gap hypothesis posits that in order for a knowledge transfer to occur, the foreign ﬁrm should have something to ‘teach’ and domestic ﬁrms should have something to ‘learn’. In most studies, a high productivity gap between foreign and domestic ﬁrms is taken as a good indicator for the possible existence of such conditions. In other words, if domestic ﬁrms are far away from the technological frontier of the foreign multinationals,...
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