Foreign direct investment and technology spillover: A cross-industry analysis of Thai manufacturing

Abstract

This paper examines technology spillover from foreign direct investment (FDI) based on a cross-industry analysis of Thai manufacturing. The analysis is built around the hypothesis by Bhagwati that technology spillover is conditioned by the nature of the trade policy regime. The result, based on a two-equation model that allows for the two-way link between the foreign presence and productivity of locally owned industries, provides support for the hypothesis. A key policy implication is that liberalizing the foreign investment regime has to go hand in hand with liberalizing the trade policy regime to maximize gains from FDI technology spillover. © 2005 Elsevier; Ltd. All rights reserved.