Thinking locally: Exploring the importance of a subsidiary-centered model of FDI-related spillovers in Brazil

This paper investigates FDI-related spillovers in Brazil for the period 1996-2005. In contrast to most previous recent studies, which have failed to identify any significant effects in emerging economies, we found that horizontal spillovers did arise in Brazil. However, they did not arise simply as a consequence of general FDI-mediated technology transfer from MNC headquarters, as the standard approach presumes. Nor were they associated with expected inter-industry differences in technological intensity, or with differences in domestic firms’ absorptive capability. Instead, spillovers were associated with the existence of particular kinds of localized knowledge-creation activities undertaken by subsidiaries. We discuss the theory and policy implications that emerge from these results.