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Technological Diffusion Via Foreign Direct Investment: An Alternative Measurement

From: The Journal of Developing Areas
Volume 47, Number 2, Fall 2013
pp. 251-275 | 10.1353/jda.2013.0023



Technological diffusion is mainly measured by the impact of Foreign Direct Investment presence on Total Factor Productivity or on a number of constructed output related indices. We apply an alternative process where the influx of more advanced technology introduced by foreign firms alters the practice of domestically owned firms and leads to improvements in their technical efficiency levels. In the present paper, we define technological diffusion as the evolution of the efficiency gap between the domestically owned and multinational firms that operate in a country and we examine whether it can be attributed to Foreign Direct Investment. This new approach is applied to the Greek chemicals sector for the period 2001–2007. Our main findings are a persistent efficiency performance gap with multinational enterprises being more efficient than their domestic counterparts. We also find that technical efficiency performance strongly depends on firm specific characteristics such as already attained technical efficiency levels, firm size, return on assets, level of self-financing, in addition to the presence of Foreign Direct Investment. Overall, only already technically efficient firms have the potential of benefitting from Foreign Direct Investment presence.

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