FDI productivity spillovers and the technology gap in Malaysia's electrical and electronic industries

Abstract

This study measures the impact of indirect technology transfer through spillovers from foreign direct investment (FDI) on Malaysia's development of a 'high-tech' sector, namely the electrical and electronic (E&E) industries. We estimate the total factor productivity (TFP) of establishments as a function of foreign presence within and across industries. Both the fixed assets and wages share of foreign establishments in a five-digit ISIC (International Standard Industrial Classification) industry are used as measures of foreign presence. The estimations provide evidence of significantly negative (or insignificant) FDI vertical spillover effects and insignificant horizontal spillover effects on the TFP of domestic establishments. The positive (negative) coefficient of the interaction term between the forward (horizontal) spillover variable and the technology gap supports the 'catching-up' (technology accumulation) hypothesis. The negative impact, even absence, of FDI spillover effects on TFP and the mixed evidence on the effects of interactions between FDI spillovers and the technology gap suggest that fine-tuning of fiscal incentive schemes for FDI to arrive at positive net benefits may prove to be a daunting task in the Malaysian E&E industries.

Death of linkages in host countries? A firm-level study on the channels of productivity spillovers in the Malaysian manufacturing sector

“…Also, in-house training centres of skill-oriented MNCs facilitated horizontal spillovers as many ex-MNC-trained local employees set up local establishments such as Unisem, Carsem, and Globtronics in the same industry (Best and Rasiah 2003). This is contrary to the findings of Khalifah et al (2015), while augmenting the spillover literature whereby accounting for workers' skills (instead of only wages or capital) may provide better evidence of productivity spillovers in the Malaysian manufacturing sector. Another important observation is the absence of spillovers through forward linkages in all the four characteristics of interest.…”

“…13 A caveat to this finding is that different industries may exhibit different outcomes. For example, Khalifah et al (2015) found negative spillovers in E&E industries, in part due to the lack of demand from foreign firms for locally supplied intermediate goods.…”

“…This may be due to MNC's production of specialised inputs being mostly not tailor-made for domestic producers. Apart from being more expensive (Khalifah et al 2015), these specialised parts are likely to be exported to international markets. In addition, there are also restrictions (such as import duties) on local consumption because Malaysian law states that procuring inputs from MNCs located in free trade zones is akin to importing.…”

Technical Efficiency Evaluation: Study on Malaysian Electrical and Electronics Firms

“…In fact, modified and improved technology tools can reduce the cost of production (Olatunji & Ibidunni, 2013). To the best of our knowledge, only Khalifah et al (2015) and Khalifah and Jaafar (2017) who study TE of electrical and electronic manufacturing industry in Malaysia use data at the industry level. However, Khalifah et al (2015) discuss the effect of indirect technology transfer on foreign direct investment (FDI).…”

“…There is also no consideration on the determinants of technical inefficiency such as Mahadevan (2002a;2002b;2002c) and Sulaiman (2012). In fact, recent studies such as by Khalifah et al (2015), and Khalifah and Jaafar (2017) used data at the industry level but not really use cross-sectional data at the firm or micro level. As a result, the level of TE obtained is not significant.…”