The impact of foreign direct investment on local industry in Chile

Abstract

Technology transfer, spillovers and linkages from MNEs to local industry may aid economic development in emerging economies. This paper argues that foreign affiliates in an emerging economy (Chile) will demonstrate multiple patterns of linkage formation which is a combination of competitive and collaborative linkages with local firms. Foreign affiliates will overcome their liability of foreignness (LOF) by engaging in collaborative relationships which augment their ownership advantages in terms of producing socially responsible products and processes (Corporate Social Responsibility, CSR). Using a sample of firms from the service sector in Chile case study techniques are employed within and across to analyse the degree of linkage (DOL) between foreign affiliates and local firms. Foreign affiliates do demonstrate multiple patterns of linkage formation and those firms with above average extent and quality of linkages are also likely to have above average scores for CSR linkages. The implications of these findings for policy and IB theory are discussed.