"The Spillover Effect of MNCs on local firms: Reviewing the Empirical Evidence" foreign production? What spillover? How spillover? What factors affect spillover?

Mesfin Abebe, Mustiary Begum
International Research Journal of Engineering and Technology   unpublished
Since 1970s, different empirical studies have been conducted to assess the effect of MNCs presence on local firms. This article exhaustively review literatures and summarize the main findings. Accordingly, why foreign production, how MNCs affect host country? what spillover,? how spillover? what affect spillover? what are ultimate spillover outcome? Are the main category many researchers attempted to address. In literatures it is stated that resource, efficiency, market and strategic asset
more » ... ng are find to be the main reasons for foreign production. Regardless of the nature of motives, MNCs presences have both direct (immediate effect) and indirect (spillover) effects on local firms. As different findings reveal technology, knowledge and skill are among many to spillover from MNCs to local firms. 'How this spillover occurs?' is imperative questions addressed by researchers and hence demonstration, employees' movement, imitation, competition and linkages are identified to be the common channels of spillover. However, it is identified that the spillover occurrences is dictated by different factors among which absorptive capacity, technology gap, free employees movement, R&D cultures, investment policy are the commonly explained one. The occurrence of positive spillover is reflected by improved productivity, better efficiency, ease foreign market access and enhanced innovation rate. Finally, as indicated in literature, the ultimate outcome of spillover can be strongly positive, positive but weak, positive only under certain conditions, negative or there might be no spillover effects at all. As stated by authors, differences in the finding are contributed by publication bias as well as differences in data type and data analysis methodology. But, there is insignificant disparity among researchers about existence of spillover effect resulted because of MNCs presence.