The Impact of South-South FDI: Knowledge Spillovers from Chinese FDI to local firms

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When MNCs engage in investment in a country, they bring knowledge spillovers into the local market to a greater or lesser extent. Such spillovers refer to knowledge invented by a unit (multinational) which is used by another unit (a local firm) for which the latter is not required to fully pay (Javorcik, 2004). Many developing countries have tried to attract and promote foreign investment in the economy, since they believe that FDI, and the ‘spillover effect” it creates, is the source for their industrial development and economic growth (Anwar & Nguyen, 2011; Kneller & Pisu, 2007). There are many factors to be taken into consideration when examining whether knowledge spillovers occur and to what extent the local economy can benefit from such spillovers: the breadth and depth of FDI linkages, local industry’s awareness of possible knowledge, motivation to learn, absorptive capacity, embeddedness in a business relationship, et cetera. Due to their associated benefits, FDI spillovers have been widely studied, however most previous work has been restricted to north-north (Girma, Greenaway, & Wakelin, 2013; Harris & Robinson, 2004), and north-south interactions (Aitken & Harrison, 1999; Javorcik, 2004; Lin, Liu, & Zhang, 2009). Few studies of south-south FDI exist (Anwar & Nguyen, 2011, 2014; Kubny & Voss, 2014; Le & Pomfret, 2011) and very few have examined the impact of inward investment from mainland China – now the largest source of south-south FDI. This paper develops a generic model of south-south FDI spillover effects, and then prepares the groundwork for the testing of such a model in a more specific context of Chinese investment in other emerging markets. The model is intended to uncover when, where and under what conditions do knowledge spillovers from a developing country to another less-developed economy occur. Also, the model allows for consideration of whether South-South spillovers lead to improvement in domestic firms’ technological capabilities and export performance.
Original languageEnglish
Pages (from-to)5-12
Number of pages8
JournalThe Hang Seng University of Hong Kong Business Review
Issue number1
Publication statusPublished - Dec 2019

Bibliographical note

Special Issue: Academy of International Business Southeast Asia Regional (AIBSEAR) Conference 2018


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