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Extent of Value-Added in Output Sales and Exports, by Destination Market
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- International Evidence on Spillovers from Foreign Direct Investment
| Extent of Value-Added in Output Sales and Exports, by Destination Market and Firm Nationality (percent) Firm nationality Product African Chinese Indian European Domestic sales Finished assembled 88 90 90 Partially finished 5 9 4 Raw material 0 5 Sales to other African Finished assembled 83 89 100 78 countries Partially finished 8 11 Raw material 0 0 Export sales outside Finished assembled 77 75 100 90 Africa Partially finished 10 25 Raw material 0 0 Source World Bank staff. Note Data pertain to 2005 median values of sales to private firms. 06-Chap6:06-Chap6 10/9/06 2:39 PM Page 324 INVESTMENT - TRADE LINKAGES IN AFRICAN - ASIAN COMMERCE 325 BOX 6.5 International Evidence on Spillovers from Foreign Direct Investment Spillovers from FDI take place when the entry or presence of multinational corporations increases the productivity of domestic firms in a host country and the multinationals do not fully internalize the value of these benefits. Spillovers may take place when local firms improve their efficiency by adopting the new technologies of foreign affiliates operating in the local market, either based on observation or by hiring workers trained by the affiliates. Spillovers also occur when multinational entry leads to greater competition in the host country market and forces local firms to use their existing resources more efficiently or to search for new technologies (Blomström and Kokko To the extent that domestic firms are effective competitors with multinationals, the latter have an incentive to prevent technology leakage and “horizontal” spillovers from taking place. This can be achieved through formal protection of their intellectual property, trade secrecy, paying higher wages, or locating in countries or industries where domestic firms have limited imitative capacities to begin with. While foreign affiliates may want to prevent knowledge leakage to local firms against whom they compete, they may have an incentive to transfer knowledge to their local suppliers in upstream sectors. These vertical spillovers can take place through several channels. Multinationals may transfer knowledge about production processes, quality control techniques, or inventory management systems to their suppliers. By imposing higher requirements with respect to product quality and on-time delivery they may provide incentives to domestic suppliers to upgrade their production facilities or management. Indeed, the pressure from multinationals is often the driving force behind obtaining ISO quality certifications. Finally, increased demand for intermediate products due to multinational entry may allow local suppliers to reap the benefits of scale economies. Source: Broadman 2005. 06-Chap6:06-Chap6 10/9/06 2:39 PM Page 325 326 AFRICA ’ S SILK ROAD : CHINA AND INDIA ’ S NEW ECONOMIC FRONTIER investors utilize new machinery is another avenue for spillovers. Indeed, a key sector in Africa where the importation of inputs is critical in affecting the export competitiveness of the continent’s manufactured products is new machinery, since this is one input in the production process where the impacts of technological advances and innovation will likely be felt most. Interestingly, there is significant variation in the source markets for new machinery purchases among different nationality firms covered in the WBAATI survey see table 6.13. African firms buy the majority of their new machinery in their local, home markets. Chinese businesses also purchase a substantial portion of new machinery in Africa, indeed twice as much as do Indian firms. But it is the share of new machinery that Chinese firms buy in their home market that is striking in comparison with other firms whereas machinery made in India constitutes 22 percent of Indian firms new machinery purchases, for Chinese firms operating in Africa, percent of their new machinery purchases are made at home. Indian firms in Africa also procure a substantial portion of new machinery in the Chinese market. The findings from the business case studies provide additional insights to these survey data about the sources and disposition of machinery and equipment by Chinese and Indian firms operating in Africa, as well as those of their African counterparts. First, whereas these firms raw materials are most often procured locally, much of their capital goods are imported, and not just from their home markets, but from Europe, the United States, and Japan. For instance, a Chinese construction firm in Tanzania recently purchased new Mack and Caterpillar trucks and other vehicles from the United States, and new Komatsu equipment from Japan. TABLE 6.13 Download 5.17 Mb. Share with your friends:
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