Foreign affiliates, export success of local firms and host country innovation capability

The paper contributes to the empirical literature by investigating host country innovation capability and export success of local firms as main determinants of technology transfer spending by foreign affiliates. In addition, the paper succeeds to partially explains why previous studies show mixed support for the significance of the technology diffusion from foreign affiliates by estimating the innovation capability threshold level. Using data for majority-owned foreign affiliates of the US parent companies in 32 developed and developing countries during the period 1966–2000, the panel data models have two main results. The first result is that the host country innovation capability and export success of local firms have significant impact on the technology transfer spending by foreign affiliates. The second result is that many developing countries do not attain the innovation capability threshold level in order to obtain positive technology spillovers from foreign affiliates.