Abstract:
Outsourcing and foreign direct investment (FDI) have become widespread phenomena of globalization in recent decades. They not only bring in capital but also introduce advanced technology that can improve the factor productivity of the host country firms, thereby generating economic growth. More importantly, the technological benefit is not limited to locally affiliated firms but can also spread to non-affiliated ones. This paper develops theoretical relationships between outsourcing, FDI spillovers and productivity, and then examines empirically whether international outsourcing contributes to technological spillovers through which total factor productivity increases in a sample of East Asia-Pacific countries. A panel-based model is specified to allow for the link between FDI, outsourcing and productivity of the region’s countries during 1990-2004. The estimation results show that international outsourcing and FDI spillovers have had significant and expected effects on total factor productivity (TFP) of the Asia-Pacific countries. This can be a good lesson for Iran to promote its economic relations with the world, particularly with those countries investigated here, as they have adequate potentials in case.
Machine summary:
"By encouraging multinational corporations (MNCs) to invest, developing countries hope to generate technology spillovers because FDI transfers to the affiliate intangible assets that may diffuse to local firms (Blomström and Kokko, 1996).
Specifically speaking, the domestic R&D capital stocks (Sdi), international outsourcing (OSi) and FDI spillovers (FDISi) are the effective determinants of the total productivity in a country.
4- Data Analysis Estimating Equation (4) by panel procedure, Table 1 summarizes the estimation results for indicating the impacts of the domestic R&D capital stocks, outsourcing and FDI spillovers on the TFP of the sampling countries.
The estimation results reported in the table also show that the coefficient of outsourcing variable is statistically significant and has expected effect on total productivity of all the countries available in the sample.
Hence, in addition to the international outsourcing and domestic R&D impacts, domestic firms can benefit from direct contact with foreign firms, so that an increase in the share of FDI to the total capital accumulation in time t increases the total productivity of countries under consideration by 0.
Hence, we have examined the impacts of domestic R&D capital stocks and FDI spillovers as well as international outsourcing on total productivity of the selected East Asia-Pacific countries by applying the estimation method regression in the panel data procedure.
A proxy of outsourcing in Equation 4 develops the role of international economics in production process, representing a set of effects of trade patterns and international spillovers on growth."