Southern MNCs in Switzerland and regional productivity spillovers in services/construction industry

Abstract

As more developing and transition market firms (southern MNCs) are engaged in outward FDI in European advanced economies, a fundamentally important question has to be addressed: whether this investment leads to positive productivity effects for host economies. Our paper addresses this issue by examining whether there are indicators of regional spillovers from the entry and the presence of southern MNCs in the service/construction industry. We suggest that: 1) regional spillovers from southern MNCs are co-determined by local and foreign characteristics, namely, FDI motivation and technological capacity of the local host country firms; 2) possible interaction effects between local technological capacity and FDI motivation would also influence the size and the extent of regional spillovers from southern MNCs. Using firms-level data from Switzerland, we found that knowledge-exploiting FDI (KE FDI) and knowledge-seeking FDI (KS FDI) have different amounts of spillovers. In addition, human capital development in local firms appears to be essential in gaining large regional spillovers. This allows for positive regional spillovers for high technology firms when southern MNCs are assigned KE mandates and for low technology firms when southern MNCs invest in KS FDI.