FDI and world heterogeneities: The role of absorptive capacities

Isabel Alvarez () and Raquel Marín
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Raquel Marín: Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales (ICEI)

No 806, Working Papers del Instituto Complutense de Estudios Internacionales from Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales

Abstract: It is generally agreed that foreign direct investment (FDI) flows can contribute to the local upgrading of host economies, whereas the diverse technological strategies of multinational companies (MNCs) can determine the existence and size of spillover effects. When considering FDI entry modes, merger and acquisitions (M&As) reveal a higher level of interaction with local productive systems than general FDI. Accordingly, their impacts may differ depending on the development level of countries and on the characteristics of national systems. Our aim is to exam the relative importance of local determinants explaining different choices of FDI entry. We explore both the strengths of the traditional explanation of FDI flows as well as the relevance of institutional stability and consolidation of national absorptive capabilities; the latter are considered key features of national systems. Our findings confirm that the factors at a country level affecting general FDI differ from those concerning cross-border M&As and support the need to investigate new drivers for attraction of FDI. Structural factors explain better the behaviour of FDI, whereas the factors of national systems of innovation are more closely correlated with the cross-border M&As trend. Finally, although international inequalities persist when both developed and developing countries are considered, it is interesting to note the importance of the heterogeneity that characterises the developing world as a topic for further research.

Keywords: Flujos de inversión directa extranjera (IDE); Empresas multinacionales; Foreign direct investment (FDI) flows (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008
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