The Formation of Technological Basement in the Host Country through the Inward Foreign Direct Investment (FDI)

Abstract

The Asian crisis in 1997 makes the old issue of the positive effects of FDI on the intellectual basement in the host country zoomed up again. This paper focuses on the three types of technology transfer by foreign firms. The first is “commercial technology transfer” through the intra-firm trade, which is achieved to realize better profitability than technology export. The second is “unintended” spillover of the technology to the host country through the local employee's job changing and the “demonstration effects” of foreign firms' new technology on local firms. The third is “intended” diffusion of technological and managerial resources by affiliates of Japanese automobile and electric/electronic firms in the host country. Until now the quantitative analysis of the effects of three types on the host country has not yet been achieved although some researches report Japanese firms have succeeded in achieving the first type. However, the third type of transfer is truly important. The reason is that, Japanese firms have to reconstruct their O, L, I advantage in the international production networks and, for that purpose, fostering creative human resources and innovative firms in host countries, which are oriented toward long-term transaction with Japanese firms, is cruciely important.

The author is now planning to implement the empirical work for Japanese and European firms to examine the effects of three types of transfer in the joint research project with UK expert.