Friday, February 7th, 2014 Reevaluating FDI Linkages between Developed and Developing Economies: From Comparative Advantage to Knowledge Orientation

Description

This paper revisits studies on foreign direct investments (FDIs) to argue for a novel understanding of such flows as drivers of knowledge-based economic globalization. In retrospect, the FDI literature on flows from highly developed to developing economies remains fragmentary in many respects and does not consistently support the assumption of positive impacts of FDIs on the host economy. Empirical studies are sometimes dated, have a short-term focus and come to different conclusions. Using the cases of China and Canada, this paper suggests that it is necessary to employ a dynamic interpretation of FDIs. It hypothesizes that, with the upgrading processes in Chinese industries and regional economies, FDIs which were traditionally led by cost/resource considerations have been readjusted and increasingly follow knowledge acquisition/creation strategies. As a consequence, such FDIs can be expected to have a stronger economic impact in China than former ones, especially over the longer-term. Based on extensive micro-level databases of Canadian and Chinese firms, this paper will test this hypothesis of the new nature of FDI linkages systematically. First, it aims to show that linkages between industrial clusters/knowledge agglomerations in the home and target country have become more important over time, as opposed to investments to low-cost/resource regions. This will be investigated across different industry groups. Second, the paper tests whether firms with transnational cluster connections exhibit better economic performance than those that have other types of FDI connections. Third, the analysis aims to explore whether FDIs that link clusters are associated with more horizontal connections between autonomous affiliates, while non-cluster linkages exhibit a stronger prevalence of vertical, value-chain-based linkages.

Harald Bathelt holds the Canada Research Chair in Innovation and Governance at the Department of Political Science, University of Toronto. He is also cross-appointed in the University of Toronto’s Department of Geography & Program in Planning and Zijiang Visiting Chair at East China Normal University, Shanghai. His research interests include clusters, innovation systems and knowledge-creation, political economy, industrial restructuring, globalization, and regional policy and governance. Recent publications encompass books on “Economic Geography” (UTB 2012) and “The Relational Economy” (OUP 2011). Presently, he prepares a book on “Trade Shows in the Globalizing Knowledge Economy” (OUP) and a major “Companion on Innovation and Knowledge Creation” (Edward Elgar). He has published many conceptual and empirical articles in leading academic journals and is Editor of the Journal of Economic Geography.

Peng-Fei Li is a Banting Postdoctoral Fellow at the Department of Political Science, University of Toronto. His research on regional development has been published on several journals and books, such as Journal of Economic Geography (Oxford), Regional Studies (Routledge), Handbook in Regional Science (Springer), and Tales from the Development Frontier (World Bank). He received his PhD from Peking University.