Foreign direct investment and technology spillovers in sub-Saharan Africa

Abstract

Foreign direct investment (FDI) is an effective conduit for technology transfer through technology spillovers to domestically owned firms in the host country. This study analyses the significance of productivity externalities of FDI to local firms, in terms of both intra-industry and inter-industry spillovers, using firm-level data from Kenya, Tanzania and Zimbabwe. The results show evidences in support of intra- and inter-industry productivity spillovers from FDI for Kenya and Zimbabwe.

Notes

¹ In order to facilitate performance comparisons across firms and time, production data was annualized and then deflated using the appropriate firm's and sector-specific deflators included with the data set.

²The ratio of labour employed by foreign firms (or ratio of capital assets or sales) to total labour employed (sales or capital assets) in sector is a proxy measure of technology spillover. Results for the spillover variable using these variables were not different and, therefore, are not reported.

³For more general review of productivity, see Managi (2003), Managi and Karemera (2004), Wagner (2006) and Musolesi (2007).