but will limit potential technology and learning transfer to the host economy
(Delderbos et al., 2001). Empirical evidence shows that FDI has a positive
effect on economic growth in export-promoting countries and no significant
effect in import-substitution countries (Balasubramanyam et al.,1996). The
more passive enabling factors, such as good education and infrastructure, have
been supplemented by more coercive policy interventions. Japan, South Korea
and Taiwan all mandated local content requirements to rapidly increase the
proportion of local inputs used in the production process and so increase
domestic linkages.
Key points
- Technology can overcome diminishing returns to investment and permit
sustainable economic growth. - Technology can be biased, cumulative, dead-end, complementary and
transformative, and can create both winners and losers. - Economic theory ranges from treatments of technology as a public good
that is freely available to all countries and firms to a focus on the profound
market failures within which technology transfer takes place. - Case studies generally find that technological diffusion and learning is by
no means automatic and that the same technology can be utilized to dramat-
ically different levels of efficiency in different developing countries. The
role of the state is important in boosting the pace of technological diffusion
but (as in the case of Maoist China) appalling mistakes are possible. - Over the last decade there has been a dramatic improvement in the quality
and availability of interventions to reduce the transmission of malaria, and
recent progress towards a malaria vaccine. Massive donor funding for R&D
and other relevant interventions have contributed to change the innovation
incentives,and this technological change is expected to be of enormous
benefit to developing countries. - There is considerable debate as to whether FDI generates wider spillover
benefits to the domestic economy, including the diffusion of new technolo-
gies. The empirical evidence is ambiguous. - There is an important (potential) policy role for the government in boosting
the net benefits from FDI.
116 Sources of Growth in the Modern World Economy since 1950