Foreign direct investment spillovers, absorptive capacities and human capital development: Evidence from Argentina.Working Paper No. 96

In this paper Rajneesh Narula and Anabel Marin address an important policy question: Do foreign firms really transfer technology to domestic enterprises? This is a critical question from a policy perspective since many governments attract multinational enterprises through generous tax holidays and other benefits on the assumption that they do, in fact, transfer technology to domestic enterprises. Using data from the Innovation Survey in Argentina, the authors show that on the whole, MNEs hire more skilled workers, pay higher wages, and spend more on training than similar domestic enterprises. This provides one explanation for their higher productivity and the potential technology spillovers to the domestic economy. However, in the Argentinian case, the authors find that on average there were no significant positive technology spillovers to domestic enterprises. Based on the results, the authors suggest that much MNE activity in Argentina has been of the kind that has limited opportunities for linkages and spillovers. These are activities in which MNEs are simply able to generate economic rents from their superior knowledge of markets, and their ability to efficiently utilize their multinational network of affiliates.