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FDI spillovers, absorptive capacities and human capital development - evidence from Argentina

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It is nowadays generally accepted that inward foreign direct investment (FDI) is crucialas a source of technological spillovers. One of the objectives of this paper is to review theevidence on the quantity and quality of human capital employed by domestic and foreignfirms. We examine whether spillovers accrue from MNE activity, and provide apreliminary understanding of why MNE spillovers remain somewhat ambiguous,particularly in developing countries, paying particular attention to human capitaldevelopment. Our analysis is supported by data from the Innovation Survey in Argentina.On the whole, MNE subsidiaries hired more professionals than domestic firms of thesame size, possessed a more skilled labour force overall, and spent more on training thansimilar domestic firms. Subsidiaries in Argentina effectively have a higher labourproductivity and pay higher wages. Yet, in terms of knowledge creation and utilisation,there was little to differentiate affiliates from domestic firms.While there is little evidence of widespread FDI spillovers, where spillovers didoccur, it was where domestic firms demonstrated high investment in absorptivecapacities. Our analysis also suggests that much of MNE activity - particularly afterliberalisation - has been of the kind that by definition has limited opportunities forlinkages and spillovers. These are activities in which MNEs may simply be able togenerate economic rent from their superior knowledge of markets, and their ability toefficiently utilise their multinational network of affiliates. These assets are not generallyeasily spilled over to domestic firms.

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Rajneesh Narula, Anabel Marin

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