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Vertical and Horizontal Spillovers from Foreign Direct Investment: Evidence from Malaysian Manufacturing

Author

Listed:
  • Ergun Dogan

    (Cankaya University, Ankara Turkey)

  • Koi Nyen Wong

    (Finance Sunway University, Malaysia)

  • Michael M. C. Yap

    (Nottingham University Business School, Malaysia campus)

Abstract

Given developing countries’ dependence on foreign direct investment (FDI) in manufacturing, it is important to assess the benefits that accompany FDI, given the cost of incentives that are used to attract foreign investments. We empirically analyze FDI spillover effects in Malaysia using unpublished establishment-level data, accounting for domestic firm size, the market orientation of local firms and foreign multinationals, and firm technology level and absorptive capacity. We find weak evidence of horizontal spillovers; backward and forward spillovers are negative in most cases. Because these results raise concerns about the technological capability of local firms, government policies on technology, human resource, education, and R&D should address this.

Suggested Citation

  • Ergun Dogan & Koi Nyen Wong & Michael M. C. Yap, 2017. "Vertical and Horizontal Spillovers from Foreign Direct Investment: Evidence from Malaysian Manufacturing," Asian Economic Papers, MIT Press, vol. 16(3), pages 158-183, Fall.
    • Handle: RePEc:tpr:asiaec:v:16:y:2017:i:3:p:158-183
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    Cited by:

    1. Miao Zhang & Rui Yang, 2022. "FDI and spillovers: New evidence from Malaysia’s manufacturing sector," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 847-877, May.
    2. Amy Dict-Weng Kwan & Tuck-Cheong Tang, 2020. "We Bring You Capital and Job – Foreign Investment and Employment in Malaysia," Capital Markets Review, Malaysian Finance Association, vol. 28(1), pages 49-63.
    3. Sarker, Bibhuti & Serieux, John, 2022. "Foreign-invested and domestic firm attributes and spillover effects: Evidence from Brazil," Journal of Multinational Financial Management, Elsevier, vol. 63(C).
    4. Urata, Shujiro & Baek, Youngmin, 2022. "Technology Spillover and Absorptive Capacity of Firms and Countries," ADBI Working Papers 1323, Asian Development Bank Institute.

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
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