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In: Business and Management

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EXPLAIN THE MERCHANISM WHERE TECHNOLOGY “SPILLOVERS” CAN HAPPEN

1/ Definition:

Attracting foreign direct investment (FDI) is a significant policy priority in developing countries. This is so with a view to creating jobs and injecting capital into the domestic economy. Moreover, FDI often comes with new technologies and innovations. They are potentially an important source of productivity growth as they may help host country domestic industries catch up with the international technology frontier.
The basic premise underlying the existence of FDI spillovers is that foreign-invested firms are technologically superior and that knowledge is transferred through their interactions with domestic firms, which, in turn, leads to productivity improvements.

Technology spillovers is meant to be a positive influence in terms of the technology to local enterprises, domestic enterprises when receiving investments of the country have higher development level. Besides the direct impact to the growth of the whole economy, the presence of the FDI also indirect impacts to the domestic business as increased competitive pressure, forcing the business to increase business efficiency, promote the process of dissemination and transfer of technologies from different sources. The implications of this are called radicular technology from FDI.Many demonstrate through studies and experimentation in many years on offshore investment activities of multinational companies in the developing countries than articulates the positive impact of FDI to the economy of the host country.

2/ The mechanism of technology spillovers:

There are many well-explored mechanisms through which such spillovers may be realised. Horizontal, or intra-sector, spillovers are those that result from knowledge and technology used by FDI firms transferred to competing firms in the same sector. Vertical, or…...

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