Third World MNEs and Its Spillover Effect

The paper examines the technology spillovers of multinational enterprises (MNEs) using the Thai manufacturing as a case study with a view to informing prudential policies for host countries’ governments to maximize the benefit from their presence. The four latest industrial censuses of Thailand (i.e., data for 2006, 2011, 2016, and 2021) are used in our inter-plant panel data regression analysis. The key finding is that the horizontal technology spillovers from MNE affiliates to indigenous firms within a given industry do not always take place, but are conditioned by the trade policy regime and the firms’ absorptive capabilities. In the restrictive trade policy regime, the presence of MNE affiliates could adversely affect indigenous firms’ productivity. The vertical technology spillover, particularly forward linkage from MNE affiliates, is negative as the restrictive trade policy regime discourages engagement between MNE affiliates and indigenous firms. Regardless of the origin of MNEs, their entry motivated by the presence of the proprietary asset could bring in the technology spillover. The extent to which host countries benefit from the spillover is determined by the absorptive capability and trade policy environment in the host countries.