Abstract
FDI has been considered by many development economists as an important channel for transfer of technology to developing countries. It is suggested that modern, advanced technologies introduced by multinational firms can diffuse to domestic firms through spillovers. In this paper, we study innovation and technology transfer activities of domestic and foreign firms in Turkish manufacturing industries, and the impact of horizontal, vertical and labor spillovers on these activities. Our analysis shows that foreign firms are more innovative than their domestic counterparts, and transfer technology from abroad (mostly from their parent companies). Horizontal spillovers from foreign firms seem to be insignificant. The effects of foreign firms on technological activities of other firms in vertically related industries are ambiguous. High-tech suppliers tend to have a high rate of innovation when the share of foreign users is high, but the opposite is true for users: high-tech users supplied mainly by foreign firms tend to have a lower rate of innovation. Labor turnover is found to be the main channel of spillovers. Our findings reiterate the importance of tacitness of knowledge, and confirm that technology cannot easily be transferred through passive mechanisms.
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Notes
Following the usual convention, “foreign firms” are defined as those joint ventures in which foreign ownership is 10% or more. If the foreign share is less than 10%, it is considered to be portfolio investment. Joint ventures with more than 50% foreign ownership are “majority-owned foreign firms”.
The data refers to all private establishments employing ten or more people, and all public establishments. The statistical unit is the “establishment” which is the main decision-making unit.
We use OECD's definition of low-, medium- and high-technology industries. Since the number of firms operating in high-technology industries is small, medium- and high-technology industries are grouped together, and defined as “high tech”.
After the elimination of local equity participation and minimum export requirements in 1986 (Öniş 1994: 96), majority-owned foreign firms realized a rapid growth in their valued added share. Therefore, all the expansion in value added share since the late 1980s was achieved by majority-owned foreign firms, whereas minority-owned foreign firms (with equity participation within the 10–50% range) kept their shares almost constant. Cieslik and Ryan (2002) also found a similar shift from minority-owned joint ventures in Central and Eastern Europe in favor of wholly-owned foreign firms.
Productivity is defined as “labor productivity”, i.e., value added per employee. Current exchange rate is used for currency conversion.
Another important reason behind the productivity differential between domestic and foreign firms is the size differential. Foreign firms are, on average, 2.5 times larger than domestic ones. Note that the productivity differential between large (employing at least 150 people) and small (employing 10–149 people) firms in low-tech industries was about 60% in the late 1990s whereas the same rate was almost 150% in high-tech industries.
The “market” and “industry” are defined at the ISIC (Revision 2) four-digit level.
We also experimented with a dummy for majority-owned foreign firms. Since most of the foreign firms in the sample are majority-owned foreign firms, there was not any major change in our results.
In a recent study on Dutch manufacturing, Brusoni et al. (2005, p. 230) found no link between the availability of codified knowledge and the level of innovativeness. Thus, they suggest that “... attempts to improve the distribution power of the innovation system by supporting codi?cation exercises, such as computer-information networks, will have a limited impact on overall rates of innovation.”
The interaction between the SFDI and skilled variables has a statistically significant (at the 1% level) negative coefficient in the innovation model for low-tech industries, i.e., those low-tech firms that employ more skilled people benefit less form foreign presence in their sectors. In the case of technology transfer models, only four out of 24 interaction variables had coefficients statistically significant at the 5% (size-SFDI, size-SSECTRD, and size-SBUY interactions had positive coefficients, and skilled-SSECTRD interaction had negative coefficient in high-tech industries).
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Earlier versions of this paper were presented at the Schumpeter 2004 Conference (Università Bocconi, 9–12 June 2004) and the Conference in Honour of Keith Pavitt (University of Sussex, 13–15 November 2003). We thank our discussants, Robin Cowan and Martin Bell, conference participants and an anonymous referee of this journal for their valuable comments. Giovanni Dosi let Aykut Lenger benefit from the excellent research environment he has created at the Sant'Anna School of Advanced Studies. We appreciate very much his hospitality and his suggestions for the paper. This paper depends on a background report prepared for the Technology Capability Project that was carried out by the Scientific and Technical Research Council of Turkey.
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Lenger, A., Taymaz, E. To innovate or to transfer?. J Evol Econ 16, 137–153 (2006). https://doi.org/10.1007/s00191-005-0002-4
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DOI: https://doi.org/10.1007/s00191-005-0002-4