# **1. Introduction**

Damijan et al. (2003) examine different channels of global technology transfer to transition countries. These authors study the impact of direct technology transfer through foreign direct investment (FDI), intra-industry knowledge spillovers from FDI, firms‘ own research and development (R&D) accumulation and R&D spillovers through trade for total factor productivity (TFP) growth of local firms. Using firm-level data for eight transition countries for the period 1994–1998, this research found that technology is being primarily transferred to local firms through direct foreign linkages.

In the specific context of Latin American countries, Ramirez (2010) estimates whether FDI flows and other relevant variables have had a positive and significant effect on private investment spending over the 1980–2002 period. On the other hand, Schiff and Wang (2010) examine the impact on TFP in Latin America and the Caribbean (LAC) and in other developing countries (DEV) of trade-related technology diffusion from the North, education and governance. The main findings are: i) education and governance have a much larger direct effect on TFP in LAC than in DEV, while the opposite holds for the North‘s R&D; and ii) education and governance have an additional impact on TFP in R&D-intensive industries through their interaction with trade-related technology diffusion from the North in LAC but not in DEV.

According to Suyanto et al. (2009), the mixed evidence of productivity spillovers leads to the celebrated argument that firm-specific characteristics or absorptive capacity may influence the ability of domestic firms in gaining productivity spillovers from FDI and trade. The most commonly used measure of absorptive capacity in the literature about this topic is the extent of R&D expenditure (Findlay, 1978; Glass and Saggi, 1998; Wang and Blomstrom, 1992).

Kathuria (2000) shows – in the context of the Indian manufacturing sector - that local firms that invest in learning or R&D activities receive high productivity spillovers, whereas the non-R&D local firms do not gain much from the presence of foreign firms. This result indicates that the productivity spillovers are not automatic consequences of the presence of foreign firms; rather they depend on the efforts of local firms‘ investment in R&D activities. Kinoshita (2001) finds similar evidence in a study on Czech manufacturing firms during 1995–98. Griffith et al. (2004) also confirm that R&D plays an important role in knowledge transfer, besides its role as a medium of innovation.

In this context, empirical evidence demonstrates that FDI and trade can contribute to overall domestic productivity growth when the technology gap between domestic and foreign firms is not too large and when a sufficient absorptive capacity is available in domestic firms, in terms of R&D and Labor Quality (Borensztein et al., 1998). There is evidence that positive developmental impacts of FDI flows are conditional on high levels of human capital and thus on the existence of ̳good‘ infrastructure in recipient countries (Yamin and Sinkovics, 2009).

For Suyanto et al. (2009, p. 4), ―the empirical studies usually assume that productivity advantage from FDI is exclusively contributed by technology transfers as is consistent with the use of conventional approach of production function. Technical and scale efficiencies are hardly studied in relation to productivity gains from FDI.‖ In this context Smeets (2008) argues that the productivity spillovers from FDI and trade should be defined broadly, as they arise from new knowledge rather than from new technology only. Smeets defines knowledge as including technology; managerial, 2