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How Domestic Firms Benefit from the Presence of Multinational Enterprises: Evidence from Indonesia and Philippines

Faculty of Management Sciences, Prince of Songkla University, Songkhla 90110, Thailand
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Economies 2019, 7(3), 94; https://doi.org/10.3390/economies7030094
Received: 3 August 2019 / Revised: 9 September 2019 / Accepted: 10 September 2019 / Published: 16 September 2019
Incentives are provided to attract multinational enterprises (MNEs) to host countries, with the expectation that their technology will spread to domestic firms. The purpose of this study is to examine how domestic firms benefit from the spillover of technology from MNEs. Using balanced panel data obtained from the World Bank Enterprise Survey, this study examined the impact of technology spillover through three channels: demonstration, competition, and worker mobility on productivity of domestic firms in Indonesia and Philippines. This study also explored the importance of domestic firms’ absorptive capacity in capturing benefits from the three spillover channels. The Cobb–Douglas production model was used as the basis for the estimation model. A fixed-effect model for panel data analysis was used to analyze the data. The empirical outcome of this study revealed that worker mobility is the most viable channel of spillover in the two countries. It also showed that firms with high absorptive capacity were found to benefit from all the channels of spillover in both countries, while the firms with low absorptive capacity benefit differently in the two countries. Thus, this study validates the need for domestic firms to develop absorptive capacity in order to benefit from the technology spillover from MNEs. View Full-Text
Keywords: technology spillover; demonstration; competition; worker mobility; absorptive capacity; productivity technology spillover; demonstration; competition; worker mobility; absorptive capacity; productivity
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Olayinka, J.A.; Loykulnanta, S. How Domestic Firms Benefit from the Presence of Multinational Enterprises: Evidence from Indonesia and Philippines. Economies 2019, 7, 94.

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