Knowledge Spillovers, the Technology Frontier and High-Tech FDI - Evidence from Finland

Abstract

The link between foreign direct investment (FDI) and the technology frontier is strong in the theoretical and empirical literature, particularly for high-tech multinational corporations. Policymakers aiming to harness local high-tech clusters therefore tend to cherish high-tech inward FDI. It is not clear whether they should. With an unbalanced panel of Finnish ICT manufacturing firms for 1993–2003, I identify the direction of knowledge spillovers by comparing the technical efficiencies of foreign and indigenous firms with DEA and order-m methodology. When knowledge spillovers flow predominantly to foreign firms, innovation policy seeking to accelerate them may accelerate the net loss of strategic assets.