On the contributions of knowledge-intensive business-services multinationals to laggard innovation systems.
| Autor | Fischer, Bruno Brandao |
| Cargo | Report |
Introduction
The usual assumption supporting the role played by multinational corporations (MNCs) in accelerating the pace of innovation and technological change is that host nations can benefit from foreign direct investments (FDI) through the generation and diffusion of technological and knowledge spillovers (Alfaro, Chanda, Kalemli-Ozcan, & Sayek, 2004). This perspective puts multinational companies as significant agents in the evolutionary dynamics of National Innovation Systems (NISs), not only because of their position of endogenous growth agents (De Mello, 1997; Girma, 2005; Mayer-Foulkes & Nunnenkamp, 2009), but also because of their capacity of becoming embedded in different contexts, performing a bridging function across economic environments (Bruhn & Calegario, 2014; Ghoshal & Bartlett, 1990).
However, most analytical frameworks are grounded on suppositions and data oriented towards manufacturing sectors (Ramasamy & Yeung, 2010), meaning that conclusions on the importance of multinationals to host markets are strongly related to statistical models and case studies focused on manufacturing agents. Although important, such analyses often ignore data and phenomena involving service industries, especially for countries that lie outside the group of developed nations (Massini & Miozzo, 2012). Hence, traditional models are bound to have diminishing relevance, as service activities respond for most of economic activity worldwide and also for an increasing share of FDI (Riedl, 2010).
Nonetheless, services' subsectors are extremely heterogeneous in their own nature (Miles, 2004; Miozzo, Lehrer, DeFillippi, Grimshaw, & Ordanini, 2010). In order to overcome this issue, narrowing down the operational definition of services to subsets of activities that share common characteristics becomes necessary. In the realm of innovation studies, a group that has rendered robust and interesting insights is that of Knowledge-Intensive Business Services (KIBS). KIBS represent a core feature of knowledge-based economies, since they leverage systemic capabilities by promoting the generation of innovative networks between agents, as well as contributing to produce, diffuse, supply and absorb knowledge across industries (He & Wong, 2009; Miles, 2004; Simmie & Strambach, 2006). These idiosyncrasies lead us to question what are the effective impacts of KIBS' FDI on the output dynamics of developing countries' innovation systems? And how do they compare with potential contributions related to manufacturing FDI?
The goal of this research is to investigate the impacts of inward FDI on aggregate outcomes of NISs, taking into account potential contributions from KIBS' multinationals and their respective comparison with manufacturing investments. Focus is given to the case of developing countries (classified as middle-income nations--see section Analytical Framework for a thorough conceptualization), since there is a widespread claim that positive externalities arising from FDI are particularly relevant for these nations, given their situation of innovative laggards (Hansen & Rand, 2006; Waldkirch, 2011). Also, these economies are playing an increasingly relevant role in FDI attraction flows (Alvarez & Marin, 2010), particularly for KIBS (Yang & Yan, 2010). Lastly, and perhaps more importantly, globalization issues related to developing countries' NISs are meagerly addressed in scientific literature (Teixeira, 2013), resulting in a lack of theoretical and empirical knowledge for the specificities of this group of nations. This is particularly relevant in a context in which the analysis of FDI impacts upon developing countries differs from that of industrialized economies as a function of distinct distances to the technological frontier (Wooster & Diebel, 2010).
To accomplish this objective, an unbalanced panel dataset comprising information for 38 developing countries throughout the period 2001-2010 was created. Relationships between KIBS' FDI were established with a set of eight economic output indicators that represent core dimensions of innovation systems. The simultaneous use of a heterodox set of output indicators stands for a broader comprehension of the complex dynamics involving National Innovation Systems. This approach also adds to existing literature that addresses FDI impacts based on a limited perspective of economic output (Wooster & Diebel, 2010).
Estimations were undertaken via fixed-effects methods, using regression models that follow the traditional endogenous growth rationale via an augmented production function. The use of a sound theoretical framework is an important feature of this analysis, as it provides robustness to this empirical exercise (a concern that is often overlooked in FDI-related studies, see Wooster & Diebel, 2010). Moreover, the novelty of this assessment lies in dealing with relationships between KIBS' multinationals and innovation environments from a quantitative viewpoint in the context of developing countries, a field that has received scant scientific treatment (Doloreux & Shearmur, 2013; Miozzo, Yamin, & Ghauri, 2012).
After this introductory outlook, second section presents contributions from FDI-related literature regarding its connections with National Innovation Systems. Third section depicts the characteristics of KIBS, their impacts on aggregate innovative capabilities and aspects concerning impacts arising from FDI. Fourth section is dedicated to outlining the analytical framework that guides the empirical exercise carried out in this research. Information on the sample and estimation procedures is offered in fifth section. Sixth section explores results of the statistical exercise and seventh section concludes with final remarks, avenues for future research and limitations of this assessment.
Foreign Direct Investments in the Context of National Innovation Systems
A first step in this literature review consists in delimiting what National Innovation Systems refers to. While there is significant flexibility on the applications and operational characteristics of this analytical toolbox, for the purposes of this research the National Innovation System concept is in accordance with the Aalborg version (see Lundvall, Johnson, Andersen, & Dalum, 2002, and Teixeira, 2013, for thorough reviews on the subject). Thus, the idea of NIS is assessed as a complex structure of elements and relationships contributing to innovation and competence building. Amongst agents involved in this framework are not only institutional settings, but also universities and, most importantly, firms and their respective sets of interorganizational linkages. In other words, reference to the concept of NIS functions as a neo-Schumpeterian interpretation of productive systems, encompassing issues related to business dynamics.
In its turn, Foreign Direct Investments constitute a particular sort of international capital flows that is strictly related to productive activities, usually impersonated by multinational corporations. Moreover, FDI has a close relationship with National Innovation Systems, representing a core vector of transnational integration (Guimon, 2009). This contribution is believed to be fundamentally related to knowledge spillovers (Alfaro et al., 2004). Potential causes for this knowledge leak are expected to be related to forward and backward linkages with other firms (learning processes with clients and suppliers), generation of networks, and inter-firm mobility of human resources.
Hence, in the context of National Innovation Systems, knowledge spillovers are the feature of main interest regarding FDI flows, since they are likely to generate long-run structural benefits for host countries' economic dynamics through the promotion of enduring systemic shifts on the productive structure (Hansen & Rand, 2006; Waldkirch, 2011). As a consequence of these theoretical postulations, FDI attraction initiatives currently represent a policy trend in developing nations (Waldkirch, 2011).
Contributions of literature regarding FDI and its relationships with developing countries' innovation systems suggest that positive externalities from MNCs presence in relatively laggard nations can function as a vector of knowledge diffusion. Nonetheless, it should be noticed that individual firms represent a rather restricted unit within macroeconomic environments. For this reason, FDI should be understood as a potential source for marginal impacts upon overall capabilities within national boundaries (as proposed by De Mello, 1997). In a similar vein, it is argued that the marginality of FDI contribution to developing countries' innovation systems can also be a function of companies' location strategies in these markets, mostly oriented towards an asset-exploiting rationale that involves low levels of resource commitment from investors (Miozzo et al., 2012; Narula & Dunning, 2010), and also caused by weakness in terms of absorptive capacities in indigenous agents (Wooster & Diebel, 2010), which may lead to insignificant contributions to host environments. However, much of the background addressed in this section makes reference to a manufacturing-oriented analytical framework. The next section explores some key aspects of knowledge-intensive business services in order to further understand the process of FDI interaction with NISs.
Knowledge-Intensive Business Services
Hertog (2000) defines knowledge-intensive business services (KIBS) as firms that "rely heavily on professional knowledge, i.e., knowledge or expertise related to a specific (technical) discipline or (technical) functional-domain to supply intermediate products and services that are knowledge based" (p. 505). Similarly, Miles et al. (1995) characterize KIBS as "services that involve economic activities which are intended to result in the creation, accumulation, or dissemination of knowledge" (p. 18). These concepts place KIBS in an influential...
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