Governmental Bargaining Power and Spillover Effects of FDI

This work conceptually explores the ability of the government to increase the developmental effects (in terms of knowledge and technology spillovers) of inward FDI (Foreign Direct Investment). It is argued that a strong government is essential in order to increase and direct the positive spillover effects of FDI and to limit possible negative implications. Based on an extensive literature review that combines the literature of spillover effects of FDI with the literature on the bargaining relationship between multinational corporations and governments a conceptual model is proposed. The model will be estimated in a two staged regression analysis on a sample of 100 developing countries from all regions of the world. Considering the results of the regression the study is able to replicate earlier findings on the largely negative competitive (crowding out) effects of FDI. The regression does not verify the the relationship between bargaining power and spillovers but suggests that future studies might find the relationship by focusing and measuring other spillover effects (e.g. knowledge spillovers).