IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v90y2013i1p123-135.html
   My bibliography  Save this article

Foreign entry and spillovers with technological incompatibilities in the supply chain

Author

Listed:
  • Carluccio, Juan
  • Fally, Thibault

Abstract

Does foreign entry improve host country productivity and welfare? Previous studies have looked at the role of backward linkages with domestic suppliers and their effects on domestic competitors. In this paper, we study how these externalities are affected by technological incompatibilities between foreign and domestic technologies. When foreign technologies require specialized inputs, some local suppliers self-select into production for multinational firms. A decrease in the cost of inputs compatible with the foreign technology has heterogeneous effects. It benefits foreign firms and the most productive downstream domestic firms that adopt the foreign technology, and negatively affects firms using the domestic technology. Technological incompatibilities reduce the welfare gains from openness to FDI, but this negative effect can be overcome by domestic technology adoption. The model's predictions are consistent with the stylized facts drawn from the empirical literature on FDI spillovers.

Suggested Citation

  • Carluccio, Juan & Fally, Thibault, 2013. "Foreign entry and spillovers with technological incompatibilities in the supply chain," Journal of International Economics, Elsevier, vol. 90(1), pages 123-135.
    • Handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:123-135
    DOI: 10.1016/j.jinteco.2012.08.004
    as

    Download full text from publisher

    File URL: https://www.sciencedirect.com/science/article/pii/S0022199612001389
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2012.08.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kugler, Maurice, 2006. "Spillovers from foreign direct investment: Within or between industries?," Journal of Development Economics, Elsevier, vol. 80(2), pages 444-477, August.
    2. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Firms in the European Union," Post-Print hal-00267438, HAL.
    3. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8o118937 is not listed on IDEAS
    4. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    5. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    6. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    7. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g8o118937 is not listed on IDEAS
    8. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    9. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
    10. Alfaro, Laura & Chen, Maggie Xiaoyang, 2014. "The global agglomeration of multinational firms," Journal of International Economics, Elsevier, vol. 94(2), pages 263-276.
    11. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    12. Wilfred J. Ethier & James R. Markusen, 2021. "Multinational firms, technology diffusion and trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 7, pages 131-158, World Scientific Publishing Co. Pte. Ltd..
    13. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
    14. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    15. Nigel Driffield & Max Munday & Annette Roberts, 2002. "Foreign Direct Investment, Transactions Linkages, and the Performance of the Domestic Sector," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 335-351.
    16. Hanousek, Jan & Kocenda, Evzen & Maurel, Mathilde, 2011. "Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis," Economic Systems, Elsevier, vol. 35(3), pages 301-322, September.
    17. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    18. Salvador Barrios & Holger Görg & Eric Strobl, 2016. "Spillovers through backward linkages from multinationals: Measurement matters!," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 11, pages 213-226, World Scientific Publishing Co. Pte. Ltd..
    19. Gustavo J. Bobonis & Howard J. Shatz, 2007. "Agglomeration, Adjustment, and State Policies in the Location of Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 30-43, February.
    20. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    21. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    22. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    23. Gene M. Grossman & Elhanan Helpman, 2005. "Outsourcing in a Global Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 135-159.
    24. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    25. Sourafel Girma & David Greenaway & Katharine Wakelin, 2013. "Who Benefits from Foreign Direct Investment in the UK?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(5), pages 560-574, November.
    26. Mark E. Doms & J . Bradford Jensen, 1998. "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 235-258, National Bureau of Economic Research, Inc.
    27. Benfratello, Luigi & Sembenelli, Alessandro, 2006. "Foreign ownership and productivity: Is the direction of causality so obvious?," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 733-751, July.
    28. Laura Alfaro & Andrés Rodriguez-Clare, 2004. "Multinationals and Linkages: An Empirical Investigation," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 113-169, January.
    29. Beata Javorcik & Wolfgang Keller & James Tybout, 2008. "Openness and Industrial Response in a Wal‐Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers," The World Economy, Wiley Blackwell, vol. 31(12), pages 1558-1580, December.
    30. Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April.
    31. Andrés Rodríguez-Clare, 2005. "Coordination Failures, Clusters, and Microeconomic Interventions," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2005), pages 1-41, March.
    32. Chor, Davin, 2009. "Subsidies for FDI: Implications from a model with heterogeneous firms," Journal of International Economics, Elsevier, vol. 78(1), pages 113-125, June.
    33. Ralf Martin & Chiara Criscuolo, 2002. "A note on ownership and productivity in UK businesses," United Kingdom Stata Users' Group Meetings 2002 6, Stata Users Group.
    34. repec:bla:scotjp:v:48:y:2001:i:2:p:119-33 is not listed on IDEAS
    35. Vinish Kathuria, 2000. "Productivity spillovers from technology transfer to Indian manufacturing firms," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 343-369, April.
    36. Keller, Wolfgang, 2010. "International Trade, Foreign Direct Investment, and Technology Spillovers," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 793-829, Elsevier.
    37. Juan Carluccio & Thibault Fally, 2008. "Multinationals, technological incompatibilities and spillovers," Working Papers halshs-00586040, HAL.
    38. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2010. "Does foreign direct investment promote growth? Exploring the role of financial markets on linkages," Journal of Development Economics, Elsevier, vol. 91(2), pages 242-256, March.
    39. Sourafel Girma, 2005. "Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 281-306, June.
    40. K. Schoors & B. Van Der Tol, 2002. "Foreign direct investment spillovers within and between sectors: Evidence from Hungarian data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/157, Ghent University, Faculty of Economics and Business Administration.
    41. Rachel Griffith & Helen Simpson, 2004. "Characteristics of Foreign-Owned Firms in British Manufacturing," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, pages 147-180, National Bureau of Economic Research, Inc.
    42. Costas Arkolakis & Svetlana Demidova & Peter J. Klenow & Andres Rodriguez-Clare, 2008. "Endogenous Variety and the Gains from Trade," American Economic Review, American Economic Association, vol. 98(2), pages 444-450, May.
    43. Liu, Zhiqiang, 2008. "Foreign direct investment and technology spillovers: Theory and evidence," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 176-193, February.
    44. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    45. Blalock, Garrick & Gertler, Paul J., 2009. "How firm capabilities affect who benefits from foreign technology," Journal of Development Economics, Elsevier, vol. 90(2), pages 192-199, November.
    46. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    47. Laura Alfaro & Maggie X. Chen, 2018. "Selection and Market Reallocation: Productivity Gains from Multinational Production," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 1-38, May.
    48. repec:hal:spmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    49. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
    50. Marc Melitz, 2000. "Firm Productivity Estimation in Differentiated Product Industries," Working Paper 14404, Harvard University OpenScholar.
    51. Klara Sabirianova & Jan Svejnar & Katherine Terrell, 2005. "Distance to the Efficiency Frontier and Foreign Direct Investment Spillovers," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 576-586, 04/05.
    52. Javorcik, Beata Smarzynska & Spatareanu, Mariana, 2008. "To share or not to share: Does local participation matter for spillovers from foreign direct investment?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 194-217, February.
    53. Ariel T. Burstein & Alexander Monge-Naranjo, 2009. "Foreign Know-How, Firm Control, and the Income of Developing Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 149-195.
    54. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
    55. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    56. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
    57. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    58. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    59. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    60. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-873, September.
    61. repec:hal:wpspec:info:hdl:2441/10192 is not listed on IDEAS
    62. Cheung Kui-yin & Lin, Ping, 2004. "Spillover effects of FDI on innovation in China: Evidence from the provincial data," China Economic Review, Elsevier, vol. 15(1), pages 25-44.
    63. Katayama, Hajime & Lu, Shihua & Tybout, James R., 2009. "Firm-level productivity studies: Illusions and a solution," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 403-413, May.
    64. Ardelean, Adina & Lugovskyy, Volodymyr, 2010. "Domestic productivity and variety gains from trade," Journal of International Economics, Elsevier, vol. 80(2), pages 280-291, March.
    65. Lin, Ping & Saggi, Kamal, 2007. "Multinational firms, exclusivity, and backward linkages," Journal of International Economics, Elsevier, vol. 71(1), pages 206-220, March.
    66. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    67. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carluccio, J. & Fally, T., 2012. "Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain - Forthcoming in Journal of International Economics," Working papers 410, Banque de France.
    2. Juan Carluccio & Thibault Fally, 2008. "Multinationals, technological incompatibilities and spillovers," Working Papers halshs-00586040, HAL.
    3. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    4. Harrison, Ann & Rodríguez-Clare, Andrés, 2010. "Trade, Foreign Investment, and Industrial Policy for Developing Countries," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4039-4214, Elsevier.
    5. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    6. FERRAGINA, Anna Maria, 2013. "The Impact of FDI on Firm Survival and Employment: A Comparative Analysis for Turkey and Italy," CELPE Discussion Papers 127, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    7. Jitao Tang & Rosanne Altshuler, 2015. "The Spillover Effects Of Outward Foreign Direct Investment On Home Countries: Evidence From The United States," Departmental Working Papers 201501, Rutgers University, Department of Economics.
    8. Keller, Wolfgang, 2010. "International Trade, Foreign Direct Investment, and Technology Spillovers," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 793-829, Elsevier.
    9. Hugo Rojas-Romagosa, 2006. "Productivity Effects of FDI Inflows: A Literature Review," CPB Memorandum 170, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
    11. Damijan, Jože P. & Rojec, Matija & Majcen, Boris & Knell, Mark, 2013. "Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 895-922.
    12. Laura Alfaro & Areendam Chanda & Sebnem Kalemli-Ozcan & Selin Sayek, 2006. "How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages," DEGIT Conference Papers c011_023, DEGIT, Dynamics, Economic Growth, and International Trade.
    13. Santos, Eleonora, 2017. "Externalities from FDI on domestic firms’ Productivity: A Literature Review for Developed Countries," MPRA Paper 88958, University Library of Munich, Germany.
    14. Seda Köymen Özer & Selin Sayek Böke, 2017. "The Characteristics of Domestic Firms: Materializing Productivity Spillovers from FDI," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(11), pages 2562-2584, November.
    15. Tomáš Havránek & Zuzana Iršová, 2010. "Meta-Analysis of Intra-Industry FDI Spillovers: Updated Evidence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(2), pages 151-174, May.
    16. Harrison, Ann E. & Rodriguez-Clare, Andres, 2009. "Trade, Foreign Investment, and Industrial Policy," MPRA Paper 15561, University Library of Munich, Germany.
    17. Olivier N. Godart & Holger Görg, 2016. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 15, pages 277-288, World Scientific Publishing Co. Pte. Ltd..
    18. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2014. "When does FDI have positive spillovers? Evidence from 17 transition market economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 954-969.
    19. Anna Ferragina & Fernanda Mazzotta, 2014. "FDI spillovers on firm survival in Italy: absorptive capacity matters!," The Journal of Technology Transfer, Springer, vol. 39(6), pages 859-897, December.
    20. Yanling Wang, 2010. "FDI and productivity growth: the role of inter‐industry linkages," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(4), pages 1243-1272, November.

    More about this item

    Keywords

    Foreign direct investment; Spillovers; Technological incompatibilities; Technology adoption; Firm heterogeneity;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:123-135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.