Multinational Corporations and Spillovers

TLDR

Spillover effects of multinational firms, especially in host countries, are poorly understood, vary by country and industry, and are influenced by local capability and the firms’ activity focus, while home‑country spillovers are harder to detect and depend on where MNCs concentrate their operations. This paper examines spillover effects of the activities of multinational firms.

Abstract

This paper examines spillover effects of the activities of multinational firms. Such effects are most likely to be found in host countries, where the operations of foreign multinationals may influence local firms in the MNCs own industry as well as firms in other industries. However, there is no comprehensive evidence on the exact nature or magnitude of these effects, although it is suggested that host country spillovers vary systematically between countries and industries. In particular, the positive effects of foreign investment are likely to increase with the level of local capability and competition. The spillovers to the home countries of MNCs are often more difficult to identify, for various reasons. Earlier studies suggest that the effects are generally positive, but the increasing international division of labor within multinationals complicates the analysis. The impact on the home country is likely to depend on what activities these firms concentrate at home.