Question

How does foreign direct investment contribute to technology transfer?

Answer 1

A country achieves technology transfer by licensing agreements and direct purchase; purchasing foreign capital goods; DFI inflows; turnkey projects; and various forms of international technical assistance. In the course of its growth, Japan relied heavily on licensing, turnkey projects and reverse engineering of imported products, while in the case of Korea they relied on imports of machinery and turnkey projects

It is recognized that upgrading technology constitutes a critical element of the process of development. In this regard, the member countries of the Association of Southeast Asian Nations ( ASEAN) put a strong focus on attracting DFI flows as a means of promoting technology transfer technology transfer through FDI has the effect of stimulating competitive firms in the domestic market to carry out technological upgrades. Employees can also learn the technology when working for the company and some can launch their own projects using the technology they have acquired

The positive effects of FDI stem largely from transfer of technology, knowledge and other intagible assets, resulting in increased productivity and improved resource allocation efficiency, there was a positive relationship between FDI and economic growth. Economic growth is enhanced by FDI, but conditions in host countries such as trade and macroeconomic stability are important for some firms to pursue international expansion through foreign direct investment as a result of supply , demand and political factors that favor such global expansion

It is also contended that given the complexity of the global economy and the diversity of opportunities that companies face in different countries, it is not surprising that numerous factors can influence the decision of a firm to undertake FDI. FDI is an attempt by investors to exploit foreign markets with firm-specific assets. FDI allows multinational companies to extract economic rent from the host country which can not be obtained through other means of trade, such as export or licensing.It is further argued that due to the nature of rent extraction, FDI carries the connotation that the capital-rich countries are exploiting capital-poor countries despite the fact that FDI may also ultimately prove beneficial to the host country. Conversely, FDI 's network approach highlights the use of network resources for internationalization. Even a small and seemingly weak company can commit to FDI as long as it can leverage external resources successfully