Technological spillovers from multinational firms

• Author: Andrés Barge‐Gil,Alberto López,Ramón Núñez‐Sánchez
• Date: 01 December 2020
• DOI: http://doi.org/10.1111/twec.13001
• Published date: 01 December 2020

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wileyonlinelibrary.com/journal/twec World Econ. 2020;43:3184–3202.

© 2020 John Wiley & Sons Ltd

Received: 20 January 2020

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Revised: 17 May 2020

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Accepted: 16 June 2020

DOI: 10.1111/twec.13001

ORIGINAL ARTICLE

Technological spillovers from multinational firms

AndrésBarge-Gil1

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AlbertoLópez2

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RamónNúñez-Sánchez3

1Department of Economic Analysis, GRIPICO and ICAE, Universidad Complutense de Madrid, Madrid, Spain

2Department of Economic Analysis and GRIPICO, Universidad Complutense de Madrid, Madrid, Spain

3Department of Economics, Universidad de Cantabria, Santander, Spain

Funding information

Fundación Ramón Areces, Grant/Award Number: CISP14A3044; Ministerio de Ciencia e Innovación, Grant/Award Number:

ECO2017 and -82445-R

KEYWORDS

multinational firms, productivity, R&D, technological spillovers

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INTRODUCTION

Since the pioneering work by Caves (1974), a large body of empirical literature in international eco-

nomics has focused on analysing productivity spillovers from foreign affiliates to domestic firms.

Early studies focused on horizontal spillovers (i.e., intra-industry linkages), while more recent studies

also analyse vertical spillovers (i.e., inter-industry spillover linkages from buyers to suppliers and

from suppliers to buyers). However, in this large and still growing literature, the empirical evidence is

not conclusive. Overall, the strongest evidence is related to the positive spillovers from multinational

customers to domestic suppliers (the so-called backward spillovers) (Havranek & Irsova,2011).

The lack of robust evidence for spillovers from multinational firms may be explained by differences

in the way linkages between foreign affiliates and domestic firms are measured. In this sense, the cor-

rect measure of this type of spillover is still debated in the literature. Related to this debate, the main

body of literature measures the foreign presence in an industry in terms of the proportion of the total

output produced by foreign affiliates. Some leading examples of this literature are Javorcik (2004),

Blalock and Gertler (2008), Haskel, Pereira, and Slaughter (2007), and Lu, Tao, and Zhu (2017),

while Görg and Greenaway (2001), Smeets (2008), Havranek and Irsova (2012), and Rojec and Knell

(2018) present reviews of this literature. From now on, we identify these spillovers as output-based

spillovers. At the same time, this literature identifies technological (or knowledge) externalities as one

of the most important factors in explaining productivity spillovers from foreign presence to domestic

firms. In fact, most studies that use data on output to measure spillovers identify them, explicitly or

implicitly, as technological spillovers. However, although output produced by multinational firms is a

reasonably good measure of foreign presence in an industry, its interpretation as genuine technological

spillovers is not straightforward.

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BARGE-GIL Et AL.

To overcome this limitation, a group of recent studies uses technology-related variables to measure

spillovers from multinationals. Therefore, this type of spillover can be correctly identified as a tech-

nological spillover. This paper aims to contribute to this literature. In particular, we use data on R&D

expenditures to measure productivity spillovers from foreign presence to domestic firms. In this sense,

as pointed out by Rojec and Knell (2018), R&D expenditures are more closely related to the issue of

technology transfer than to output. As a comparison exercise, we also present the results using output

to measure spillovers.

We also contribute to the literature by distinguishing between technological spillovers from foreign

affiliates and technological spillovers from all firms in the industry. The distinction between these

two types of measures is important because it allows us to distinguish between two types of effects:

the effect of multinational presence and the effect of industry size, as MNEs are usually in larger in-

dustries. The literature is interested in the first effect, linked to R&D international spillovers, which

might occur because of the existence of a firm's unique and superior technology or other intangible

assets and incentives to use these assets abroad in foreign affiliates. Thus, the international transfer of

technology to their subsidiaries is an important consequence of MNE activities. Nevertheless, since

the transferred knowledge has a certain public goods component, it may spread through non-market

mechanisms over the host country economy, thus affecting productivity levels of domestic firms. The

second effect just reflects the role played by industry size and should not be confused with the effect

of multinationals.

The paper is structured as follows. A brief literature review is given in Section2. Section3 de-

scribes the data used in our analysis. The empirical model is presented in Section4. Section 5 dis-

cusses the results. Finally, Section6 presents the main conclusions.

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LITERATURE REVIEW

There is substantial evidence that technological spillovers exist (see Hall, Mairesse, & Mohnen,2010,

and Mohnen,2019, for reviews of this literature). Generally speaking, these technological spillovers

arise when knowledge flows to the firm from other firms. In practice, the technological spillover pool

is mainly measured as the R&D stock accumulated outside of the firm. One particular area of interest

has been whether the presence of multinationals in an industry increases the pool of knowledge that

spills over to local firms. The aim of this section is to review the literature that uses technology-related

variables to measure technological spillovers from foreign affiliates to domestic firms. Therefore, we

restrict our attention to one channel of international technological spillovers: the spillover effect of

inward FDI.1

A first classification distinguishes between the type of data used for the measurement of technolog-

ical spillovers: industry- or firm-level data. The first contributions estimate technological spillovers

from multinationals to local firms using industry-level data and focus only on horizontal spillovers.

This strand of literature includes the works of Driffield (2001), McVicar (2002), Frantzen (2002) and

Añón-Higón (2007). Results regarding the existence of positive horizontal technological spillovers

are mixed and inconclusive. McVicar (2002) shows evidence of international horizontal R&D spill-

overs for a sample of OECD countries. However, Driffield (2001), McVicar (2002) and Añón-Higón

(2007), using data from British manufacturing industries, do not find any evidence of horizontal R&D

1The literature has identified at least three other channels through which international knowledge spillovers take place:

outward FDI, intermediate goods imports and a disembodied direct channel (see Lee,2006).