The impact of foreign direct investment on New Zealand industry
This thesis examines the impact of Foreign Direct Investment (FDI) on industry in New Zealand. The research question addressed by the thesis is “What is the impact of FDI on New Zealand industry?”. The scope of the research incorporates the immediate, or first round impact of FDI on the foreign-owned affiliates operating in New Zealand, and the long-term, or second round impact on other local firms via inter-firm linkages. The thesis operationalises the Investment Development Path (IDP) concept which links economic development to inward and outward FDI. The IDP posits that given appropriate receptor conditions, the unique Ownership-Location-Internalisation (OLI) configuration of the Multinational Enterprise (MNE), via the inward FDI vehicle, might provide the impetus for upgrading of local industry and eventually, outward FDI by indigenous firms. This thesis assesses how this might occur at the firm-level. A survey of all foreign-owned firms operating in New Zealand as at November 1999, resulted in 516 useable responses from an estimated population of 1554 firms. Descriptive statistics, multiple and logistic regression, and cluster analysis were employed to analyse these responses. This is the only major survey of FDI in New Zealand undertaken since the late 1960s, and thus fills a considerable gap in the existing literature. The results reveal that the affiliates are reliant on their foreign parent companies for resources such as finance, technology, knowledge and innovation, that offer them competitive advantage in New Zealand. The affiliates form a variety of linkages with local firms. The most significant of these are indirect competitive linkages, forward linkages with agents and customers, backward linkages to source specialised services, and collaborative linkages. The research model relates the Degree Of Linkage (DOL) of the affiliate within the local economy to its impact on local industry upgrading. The results suggest that as DOL increases, the opportunities for upgrading also increase via quasi-internalisation of ownership-specific advantages by the affiliate. The thesis concludes that FDI has a significant impact on local industry upgrading at the first round level by adding to the competencies of the affiliate, and at the second round level through competitive pressure, creating demand and supply, providing assistance, and transferring firm-specific resources to local firms. The contributions of this thesis to existing knowledge relating to the impact of FDI are as follows. One, examination of a broad range of linkages allows a more comprehensive assessment of the extent and pattern of second round impact. Two, incorporating assistance and collaborative linkages confirms that quasi-internalisation of ownership-specific advantages may occur through intermediate organisational routes as a complement to the hierarchical routes associated with FDI. Three, focus on the second round impact at the micro-level demonstrates the crucial link between inward FDI, upgrading of local industry, outward FDI, and the eventual economic development of a host country. Four, classification of affiliates by DOL enables the identification of distinct types of FDI and thus, different outcomes for industry upgrading. Five, analysis of the key determinants of linkage formation and DOL, provides policymakers with a foundation from which to evaluate the potential of FDI for upgrading in the future.
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