Outward FDI from Developing Country MNEs as a Channel for Technological Catch-Up

Abstract

One of the more recent aspects of the globalization process is the rise and the increasing outward expansion of multinational enterprises (MNEs) from developing countries. Among the more promising effects of this phenomenon is a potentially positive development impact: through outward foreign direct investment (OFDI) developing country MNEs acquire new knowledge, which contributes to the technological catch-up of their home countries. This paper reviews the recent literature on OFDI from developing countries, with a critical focus on the theory and evidence of FDI as a channel for technological catch-up. This literature suggests that the features and global business environment of current emerging country MNEs is different from those of latecomer firms in earlier decades. Modularity of production in an increasing number of sectors, combined with weak national innovation systems (NIS) in many developing countries explain why the sourcing of strategic assets – including technology and innovation – from abroad through OFDI has become such an important channel for technological catch-up.