Foreign subsidiaries as channel of international technology diffusion

The use of FDI as a channel of international spillovers is by now fairly established in the empirical literature on innovation and growth. It is often argued that subsidiaries of foreign MNEs are a mechanism through which technological know-how flows across borders. For foreign subsidiaries to be channels of international spillovers, these subsidiaries need to source know-how internationally and at the same time transfer their know-how to the local economy. Using direct firm level evidence from Belgian CIS-survey data on the occurrence of technology transfers, we find that foreign subsidiaries are indeed more likely to acquire technology internationally. But once controlled for the superior access to the international technology market that foreign subsidiaries enjoy, we find that these firms are not more likely to transfer technology to the local economy. In summary, the main result of this paper is that it is not so much the multinational character of the firms, but rather their access to the international technology market that is important for generating external knowledge transfers to the local economy.