Determining the size of technological gap between local firms and foreign direct investment at regional level

Abstract

The size of technology gap is one determinant of indirect spillover effects from FDI. Whether and to what extent FDI inflows generate positive spillovers affecting productivity growth of host country firms depends on several factors, including the degree of FP and the position of local and foreign businesses. The FDI index we created, follows the difference between the technology level of foreign companies and the regional business environment. The shift-share analysis is complemented by TOPSIS, which evaluated Czech regions individually between 2002 and 2017 on the basis of maximization and minimization data (individual components of RRTG). The aim of the paper is to determine the extent to which the presence of FDI is reflected in productivity of business environment. Regional evaluations via RRTG and TOPSIS significantly correlate. The differences in both versions are identified by comparing the mean values and the distribution functions of the results. The application of our approach to local regions is unique in identifying the size of technology gap at NUTS 3 levels. The advantage of this approach is its ease of modification. The studied set of regions can be indefinitely expanded and it is applicable to other territorial units and different time series.