What Determines Foreign Direct Investment in R&D: Different Impact of Private and Public R&D in Developed and Developing

Host Countries

This revision: January 2011 Keun Lee Professor of Economics, Seoul National University enneth!snu"ac" r Jun# i Par $e%artment of Economics, Seoul National University ryan& %!hanmail"net $on' Joon Lee (J (or%oration )&lee*2+!hanmail"net

Earlier version of this %a%er ,as %resente) in 2010 -usiness . Economics Society /nternational (onference in 0thens in July 2010" The authors ,oul) li e to than valua1le comments from $aniel 2avala 3io" "

01stract This %a%er is a1out fin)in' out the )ifferent )eterminants of the location of 3.$ 4$/ in )evelo%e) an) )evelo%in' countries" /n the case of the host )evelo%e) countries, ,e fin) that %rivate 3.$ investment is %ositively associate) ,ith attractin' 3.$ 4$/" /n contrast, in case of the host )evelo%in' countries, ,e fin) that %rivate 3.$ investment is not si'nificantly associate), ,hile %u1lic 3.$ in)uces 3.$ 4$/" These fin)in's im%ly that the o1&ective of 3.$ 4$/ in )evelo%e) economies is to tar'et local technolo'y mar et an) to a)vance further their technolo'y" /n contrast, 5N(s6 3.$ 4$/ in )evelo%in' countries is attracte) to,ar) localities ,here 3.$ infrastructure is 1etter )evelo%e) o,in' to %u1lic 3.$ investment" 5N(s in )evelo%in' countries )o not care much a1out 3.$ activities of local %rivate sector, as their 'oal is to mo)ify their o,n technolo'y or %ro)ucts for local or e7%ort mar et in host countries" 8hile one o1vious %olicy im%lication is the im%ortance of con)uctin' your o,n 3.$ to attract forei'n 3.$, this stu)y su''ests that it is %rivate 3.$ in the case of )evelo%e) countries, an) %u1lic 3.$ in the case of )evelo%in' countries, that matters res%ectively" Thus, if they ,ant to attract 3.$ 4$/, the )evelo%e) countries nee) to stimulate %rivate 3.$ further rather than 3.$ 1y %u1lic a'encies that mi'ht cro,) out %rivate 3.$" /n contrast, ,hen a country has a lo, level of technolo'ical )evelo%ment in %rivate sector, it nee) to initiate %u1lic 3.$ first to in)uce %rivate one at later sta'es 1ecause there are less cro,)in' out effect of %u1lic 3.$" Key 8or)s: 3.$, 4$/, )eterminant, )evelo%in' countries, )evelo%e) countries, %u1lic 3.$

1"

/NT39$U(T/9N

Since the 1+:0s, multinational cor%orations ;5N(s< have cons%icuously investe) in forei'n countries" 0ccor)in' to UN(T0$=s 4$/ ;forei'n )irect investment< Statistics $ata1ase ;UN(T0$ 200><, the 'lo1al 4$/ inflo,s ,ere at aroun) ?>0 1illion in the early 1+@0s" Since then, they sur'e) to ?*@: 1illion in 1++A an) to ?1,B+@ 1illion 1y 2000" 0fter short )ecline ,ith the 1urst of /T 1u11le, they resur'e) a'ain to reach ?1,@BB 1illion in 200A" 0n im%ortant fact in this re'ar) is that it ,as 'ro,th of not only investment to 1uil) %ro)uction lines 1ut also of investment to con)uct research an) )evelo%ment ;3.$< in host countries" The Unite) Nations (onference on Tra)e an) $evelo%ment ;UN(T0$, 200>< re%orte) that the 3.$ e7%en)iture 1y forei'n affiliates in host countries ; R&D FDI hereafter< ,orl),i)e 'reatly increase) from a1out ?2+ 1illion in 1++2 to ?:A 1illion 1y 2002, namely t,o fol) increase ,ithin a )eca)e" This 3.$ 4$/ is 'ettin' more attention as more am1itious host countries %refer to attract more 3.$ 4$/ than or)inary 4$/, of ,hich the im%acts on host country economies are often )is%ute), es%ecially amon' )evelo%in' countries" 8hile a num1er of em%irical stu)ies )emonstrate) that 4$/ resulte) in %ositive im%acts on economic 'ro,th in host countries ;Li%sey, 2000C -orensDtein et al", 1++@C 8orl) -an , 2001C UN(T0$ 2000, 2001<, in %articular )evelo%in' economies in 0SE0N re'ions ;5irDa et al", 200B< an) (hina ;-uc ley et al", 2002<, others have 1een notin' its ne'ative im%acts, startin' from classical ar'ument of im1alance) )evelo%ment ;Eymer, 1+:0<, such as local firms 1ein' cro,)e) out from the host countries6 mar et ;-lomstrom an) Ko o, 1++A<" Even in the case of (hina, ,hich is one of the most successful latecomers in the recent )eca)es, ,hile 4$/ has 1een attri1ute) to as the main 'ro,th en'ines ;(hen et al", 1++>C Sun an) Pari h, 2001C Tian et al", 200*<, s e%tical vie,s on forei'n investment have recently risen in (hina, notin' that it has faile) to lea) to effective technolo'y transfer an) in)i'enous innovation ca%a1ilities ,hile 'eneratin' only lo,#%ai) &o1s ;Jin, Lee an) Kim 200@<" /n this vein, the (hinese Presi)ent Eu, since his inau'uration in 200B, has em%hasiDe) the so#calle) Fin)i'enous innovation6 an) lar'er investment in the local no,le)'e 1ase" Since then, the (hinese 'overnment has su%%orte) innovation le) 1y (hinese firms ,ith in#house 3.$" Such em%hasis shift is not sur%risin' as no,le)'e has 1een increasin'ly reco'niDe) as ey in%ut for 'ro,th, as note) 1y many stu)ies" 0n em%irical stu)y ;Guellec an) van Pottels1er'he, 200*< su''este) that this 3.$ e7%en)iture is a si'nificant )eterminant of 'ro,th" Lee an) Kim ;200+< fin) 1y cross#country
3

%anel analysis that ,hile secon)ary e)ucation an) %olitical institutions turn out to 1e im%ortant for lo,er income countries, technolo'ical )evelo%ment an) hi'her e)ucation are more effective in 'eneratin' 'ro,th for u%%er mi))le an) hi'h income countries" /t is no )ou1t that technolo'ical ca%a1ilities can 1e nurture) in com1ination of 1oth in)i'enous an) forei'n 3.$ in host countries" (aves ;1+A1, 1+A*< )ivi)e) the %otential 1enefits from 4$/ into three: allocative efficiency, technical efficiency, an) technolo'y transfer, an) note) that technolo'y#transfer efficiency arises ,hen 5N(s transfer their o,n a)vance) technolo'y in host countries" 8hile other em%irical stu)ies follo,e) (aves ;1+A*< to fin) a %ositive im%act of technolo'y transfer ;Glo1erman, 1+A+C -lomstrom, 1+@+<, the im%act of technolo'y transfer ,oul) 1e 'reater an) lon'er#lastin' ,hen it is com1ine) ,ith local 3.$ con)ucte) 1y forei'n com%anies" (arlsson ;200:< an) (ant,ell an) Piscitello ;2000< fin) that 3.$ 4$/ contri1ute) to 'ro,th of a tar'ete) in)ustry in the host countries" UN(T0$ ;200>< also o1serves that 3.$ s%en)in' 1y forei'n enter%rises %romotes technolo'y transfer, there1y re)ucin' technolo'y an) income 'a%s 1et,een the forerunnin' an) latecomer countries" /t is thus no ,on)er that many countries are im%lementin' %olicies to %romote 3.$ 4$/, such as financial an) ta7 incentives to local 3.$ su1si)iaries, construction of science %ar s to host 5N(s6 3.$ activities, an) even )irect 3.$ 1y host country 'overnments" /n a survey con)ucte) 1y UN(T0$ ;200>< involvin' @* national investment %romotion a'encies ;/P0<, >>H res%on)e) that they actively %romote) 3.$ 4$/" Given this im%ortance of 3.$ 4$/, this stu)y aims at fin)in' out ,hat )etermines location of 3.$ 4$/" $es%ite risin' im%ortance an) interests on this to%ic of )eterminants of 3.$ 4$/, the e7istin' stoc of the relate) literature lac s a ri'orous systematic analysis" 0s the revie, in the ne7t section sho,s, some stu)ies %ai) attention to one )eterminant of forei'n 3.$ in ne'lect of other factors, or to several countries cases ,ithout 'eneral sco%e, es%ecially ,ithout com%rehensive 1ut ,ith se%arate treatment of the )evelo%e) an) )evelo%in' countries" 4or instance, several stu)ies focuse) on the relationshi% 1et,een 3.$ 4$/ an) the technolo'y level of the host country in ne'lect of other factors ;5ansfiel) et al", 1+A+C Pain an) Lans1ury, 1++A<" 9ther stu)ies use the )ata from a survey of 5N(s from one or several countries, in ,hich the sam%les ,ere limite) to U"S" or Ja%anese firms ;Kumar 2001C 4lori)a 1++A< or S,e)ish firms as in 4ors ;1++@< an) Ea Inson an) No1el ;1++B<" 9ne stu)y ,ith multi#country covera'e 1y usin' country %anel analysis is ;Er en et al, 200><" Eo,ever, this is limite) to 1B 9E($ counties only ,ithout a se%arate treatment of )evelo%in' countries"
4

8e inten) to contri1ute to the literature 1y tryin' several ne, thin's" 4irst, ,e use country %anel analysis ,ith a lar'est country covera'e an) lon'er timeframe, usin' the 3.$ )ata from the Unite) Nations E)ucational Scientific (ultural 9r'aniDation ;UNES(9<" Secon), ,e consi)er more an) ne, )eterminants, such as %rivate an) %u1lic 3.$ investment in host countries, an) )ivi)e host countries 1y the sta'e of economic )evelo%ment, usin' the classification metho)s set 1y /nternational 5onetary 4un) ;/54< in 200+" Thir), ,e con)uct not only the %oole)#9LS estimation 1ut also fi7e)# an) ran)om#effect %anel estimations, an) then com%are these three results to come u% ,ith ro1ust results" 8ith these ne, features, one of the most interestin' fin)in' of ours is that ,hile local %rivate 3.$ is %ositively relate) to the )e'ree of 3.$ 4$/ in the host )evelo%e) countries, %rivate 3.$ in the host )evelo%in' countries is not si'nificantly relate) to 3.$ 4$/, ,ith %u1lic 3.$ %ositively relate) to 3.$ 4$/" This im%lies that in )evelo%in' countries, it is effective for the 'overnment in )evelo%in' countries to su%%ort %u1lic 3.$" This %a%er is or'aniDe) as follo,s" Section 2 revie,s several relate) literature, %oints out their ,ea nesses to i)entify room for im%rove) research" Section B intro)uces our re'ression mo)el ,hich is an e7tension an) mo)ification of Er en et al ;200><, an) also e7%lains the varia1les an) )ata sources" Section * %resents the results of re'ression analysis" 4inally, Section > conclu)es the %a%er ,ith a summary an) some remar s"
2"

The Literature an) our 4ocus

/n early )ays, there ,as no se%arate theory of 3.$ 4$/ 1ut 'eneral 4$/" The first 4$/ theory su''este) that 4$/ is a metho) of transferrin' ca%ital an) no,le)'e there1y ena1lin' 5N(s to or'aniDe overseas manufacturin' ;Eymer, 1+:0<" Jernon ;1+::< can also 1e re'ar)e) as a 4$/ theory althou'h the ey conce%t of his ,as a %ro)uct life cycle" /t states that if a firm consi)ers the location for commo)ities on the 1asis of mar et consi)erations e7ten)in' ,ell 1eyon) sim%le factor cost minimiDation analysis, locations of commo)ities ,ill vary ,ith each sta'e of stan)ar)iDation an) maturation as a result" These t,o early theories )emonstrate) that the occurrence of 4$/ only )e%en)s on internal ;firm#level< factors, im%lyin' that 3.$ 4$/ is also 1ase) on the com%etition to )ominate the host country mar ets ta in' a)vanta'e of firms6 o,n technolo'y" 4ollo,in' these t,o main theories on 4$/, the mono%olistic a)vanta'e theory ;$unnin', 1+>@C Kin)le1er'er, 1+:+C etc",< an) internaliDation theory ;-uc ley an) (asson, 1+A:C 3u'man, 1+@1C etc",< have a%%eare), an) they e7%laine) 3.$ 4$/ in a similar manner" 0ccor)in' to the mono%olistic a)vanta'e
5

theory, 4$/ refers to an overseas %rofit#see in' 1ehavior usin' the firm6s o,n su%erior factors, inclu)in' ca%ital, technolo'y, or'aniDation an) 3.$, amon' others" /n contrast, the internaliDation theory states that 4$/ arises to fill the im%erfection of or voi)s in the host country6s mar et, thus 'eneratin' sta1le %rofits usin' a)vance) technolo'y" $unnin' ;1+@0< com1ine) the )ifferent 4$/ theories an) came u% ,ith the Eclectic theory, e7%lainin' that 4$/ is in)uce) 1y the o,nershi%#s%ecific a)vanta'e, the internaliDation a)vanta'e, an) the location a)vanta'e" /n this, the location a)vanta'eKthe ne, )eterminant of 4$/Krefers to the con)ition of the host country such as the mar et siDe, la1or costs, 'overnment %olicies an) other con)itions" 0s the eclectic theory 1ecame the most 'enerally acce%te) 4$/ theory, a num1er of stu)ies have analyDe) location a)vanta'es an) then classifie) them into %olicy a)vanta'es ;e"'", %olitical sta1ility, mature level of )emocracy, etc"<, economic a)vanta'es ;e"'", mar et siDe, 'ro,th rate, etc"< an) other a)vanta'es" 8e can ta e this theory to im%ly that mar et siDe, 3.$ human ca%ital, infrastructure, an) other location a)vanta'es of hostin' countries may 1e the %rimary )eterminants of 3.$ 4$/" Eo,ever, most of the em%irical stu)ies a1out the location# a)vanta'e#relate) )eterminants for 3.$ 4$/ use) to either analyDe only a limite) num1er of countries or )eterminants" 4irst, a num1er of stu)ies have focuse) on the relationshi% 1et,een 3.$ 4$/ an) the host country=s level of technolo'y" Some stu)ies su''este) that 5N(s invest on 3.$ overseas to access the country6s lo,#level technolo'y mar et, ,hile usin' their o,n a)vance) technolo'y ;5ansfiel) et al", 1+A+<" 5ean,hile, other stu)ies su''este) that the aim of 5N(s is to acLuire technolo'y from the hi'h#level technolo'y countries ;Pain an) Lans1ury, 1++A<" 0 thir) vie, also e7ists to say that these t,o motives are mi7e) ;-as an) Sierra, 2002<" Secon), more recent stu)ies em%hasiDe access to not only technolo'y 1ut also mar et ;-as an) Sierra, 2002<" -ase) on a survey of %harmacy an) /T in)ustries, Kuemmerle ;1+++< su''este) that 5N(s involve) in 3.$ 4$/ aim to acLuire ne, technolo'y an) to 'ain access to mar ets" -ase) on a survey of 5N(s in the U"K", Pearce ;1+++< su''este) that the main 'oals of 4$/s have 1een evolvin' from 'ainin' access to ne, mar ets to acLuirin' ne, technolo'y ,hich also )e%en)s on 3.$ investments 1y host countries" Thir), there are stu)ies have su''este) that Faccess to Lualifie) staff6 in the host country is one of the ey )eterminants for i)entifyin' a location of 3.$ 4$/ ;/nDelt, 200@<" /n the case of the U"S" an) Ja%an, the a1un)ance of 3.$ man%o,er ,as a si'nificant )eterminant
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;Kumar, 2001<" /n the case of other countries, in a))ition to the a1un)ance of 3.$ man%o,er, 5N(s also loo e) at the Luality level of the man%o,er availa1le ;(ournet an) 3ensman, 2001C E)ler et al", 2001<" 0 survey of 5N(s6 senior e7ecutives also sho,e) that most res%on)ents ran the factor Faccess to Lualifie) staff6 hi'h ;:1H< in )eterminin' the location for 3.$ 4$/ ;E/U, 200*<" 4ourth, a num1er of stu)ies su''este) im%ortance of other )eterminants, such as e7istence of first#rate universities, local %rivate an) %u1lic 3.$ activities, an) other no,le)'e#relate) ;3osen1er', 1+@2C Nelson an) 8inter, 1+@2C E)Luist, 1++AC Er en et al, 200><" 5oreover, the tri%le heli7 relationshi% amon' university#in)ustry#'overnment ;EtD o,itD an) Ley)es)orff, 2000< as ,ell as the %ossi1ility of colla1oratin' ,ith local firms or institutions are li e,ise attractin' the inflo, of 5N(6s 3.$ investments ;(hes1rou'h, 200BC (hamina)e an) Jan', 200@<" 4ifth, ,e can consi)er host country6s %olicies an) incentives to attract 3.$ 4$/" 4iscal an) financial incentives, 'overnment )elivery of %re#investment an) im%lementation services, an) 1etter %rotection of intellectual %ro%erty ri'hts, are e7am%les of such 'overnment measures ;GuimMn, 200@<" Eo,ever, com%are) ,ith local technolo'y, Lualifie) man%o,er, or no,le)'e infrastructure, these %olicy varia1les are evaluate) to 1e relatively less 4inally, history or %ath#)e%en)ency also matter as ey )eterminants of location of im%ortant" forei'n 3.$ since 5N(s choose to initiate ne, 3.$ activities after they first esta1lish their sales or %ro)uction su1si)iaries or as an e7%ansion of e7istin' 3.$ facilities, inclu)in' mer'er an) acLuisition ;5.0< ;(ornet an) 3ensman, 2001<" /n some case, hi'her status an) intention of local su1si)iary mana'ers for 3.$ are im%ortant ;Simoes an) Neva)o, 2001C Lin' et al", 200><" Ta in' an inte'rate) a%%roach, this stu)y ,ill consi)er all the a1ove mentione) factors in our em%irical analysis, e7ce%t %olicy measures ,hich ,ere foun) to 1e less im%ortant 1y the literature" 0ll other varia1les are consi)ere) to re%resent host countries6 level of technolo'y, mar et siDe, 3.$ human resource, stoc of 4$/, an) local 3.$ investment" Such inte'rate) a%%roach is in line ,ith some of more recent stu)ies" 4or e7am%le, one stu)y use) the )ate from a survey of S,e)ish firm6s overseas 3.$ investment, an) consi)ere) such location# s%ecific factors as mar et siDe ;host country G$P<, 3.$ man%o,er %er 1,000 inha1itants, an) country6s relative s%ecialiDation in certain in)ustry ;4ors, 1++@<" 3e'ar)in' location# s%ecific factors, Kumar ;2001< analyDe) the location of overseas 3.$ activities 1y the U"S"
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an) Ja%anese cor%orations, in terms of mar et siDe, 3.$ man%o,er, ,a'es, costs, 3.$ e7%en)itures %er G$P in the host country an) o%enness" /n their country %anel analysis of selective 9E($ countries, Er en et al ;200>< consi)er such factors as availa1ility of Lualifie) %ersonnel, international accessi1ility, Luality of forei'n firms, an) stoc of %rivate 3.$ ca%ital" Then, one of the most im%ortant )istinctions, es%ecially com%are) to Er en et al" ;200><, of our research is that ,e have )ivi)e) local 3.$ into %rivate an) %u1lic investment to see if they have )ifferent im%acts in )evelo%in' vs" )evelo%e) economies" 0s Er en et al ;200>< fin), activatin' local 3.$ is one of the %rimary )eterminants of attractin' 3.$ 4$/" Then, a ne7t Luestion is to )ecom%ose local 3.$ into %rivate an) %u1lic an) to com%are their im%acts" 8e mi'ht con&ecture that ,hen a country has a lo, level of technolo'ical )evelo%ment of %rivate firms, it mi'ht nee) to initiate %u1lic 3.$ first to in)uce %rivate one at later sta'es" /n )evelo%e) countries, local %rivate firms con)uct su1stantial 3.$ 1y themselves an) there1y mi'ht attract more 3.$ 4$/" /n contrast, in many cases of )evelo%in' countries, %rivate firms have no motivation or ,ill to un)erta e 3.$, an) thus there ,ill 1e less cro,)in' out effect of %u1lic 3.$ ;8ol)e#3ufael, 200+<" /n such situation, initial %um%#%rimin' 1y %u1lic 3.$ mi'ht 1e )esire)" 0ctually, one research fin)s that a1out ?0"2A %rivate 3.$ investment is stimulate) for every )ollar of 'overnment 3.$ ;Levy an) Terlec y&, 1+@B<" Neary ;1+++< also o1serves that %u1lic#le) systematic 3.$ sho,e) its effectiveness in )evelo%in' countries" The case of South Korea )emonstrates that the Korean 'overnment has lon' con)ucte) %urely %u1lic 3.$ sine the 1+A0s as ,ell as run many %rivate#%u1lic 3.$ consortia since the mi) 1+@0s ,hen 3.$ ca%a1ilities of %rivate firms ,ere ,ea ;Lee an) Kim 2010<" 9nly from the 1++0s, %rivate 3.$ accounte) for a1solute ma&ority of total 3.$ in Korea ;Lee an) Kim, 200+<" The im%acts of %rivate 3.$ con)ucte) locally coul) also 1e )ifferent in the conte7t of )evelo%in' an) )evelo%e) economies" /n the former, it is mainly to a1sor1 an) assimilate forei'n technolo'ies, an) coul) 1e more $ ;)evelo%ment< oriente) than 3 ;research< oriente)" 4rom the %oint of vie, of 5N( investors, they ,oul) 1e concerne) a1out %ossi1le lea a'e of their technolo'y in the )evelo%in' countries ,here %rotection of /P3s is usually slo%%y" 4rom their %ers%ective, active local 3.$ 1y )evelo%in' countries firms mi'ht 1e %erceive) as active technolo'y scannin' an) emulation activities" /f this is case, more local 3.$ activities 1y %rivate firms mi'ht not 1e as much attractive to 3.$ 4$/ as in the )evelo%e) economies"
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no,le)'e institutions, value a))e) 1y

B"

EST/50T/9N 59$ELS, $0T0, an) S95E $ES(3/PT/9N

;a< Estimation 5o)els 9ur estimation mo)els are 1asically country#%anel re'ressions ,ith 3.$ 4$/ as the )e%en)ent varia1les" The 1asic s%ecifications are similar to those in Er en et al" ;200>< ,hich is also a country#%anel analysis" 0s )iscusse) 1efore, an im%ortant )istinction of our mo)el is then to )ivi)e local 3.$ into %rivate an) %u1lic 3.$ an) to com%are the effects in )evelo%in' an) )evelo%e) economies" 8e have also a))e) several varia1les, such as the siDe of an economy, an) the level of technolo'y, 1oth of ,hich is missin' in Er en et al ;200><" This stu)y re%resents the level of technolo'y of a host country 1y a varia1le of Fa total num1er of %atent 'rante) classifie) 1y country of ori'in ;office< )ivi)e) 1y the num1er of total %atent 'lo1ally"6 To re%resent the level of human ca%ital, Er en et al ;200>< use) three in)icators of the level of e)ucational attainment, the num1er of ,or ers in science an) technolo'y, an) colle'e 'ra)uates in science an) technolo'y, ,hich loo some,hat overla%%in' or re)un)ant" 9ur stu)y thus uses &ust one varia1le of the num1er of 3.$ %ersonnel in each country" /n contrast, ,e have e7clu)e) the varia1le of the cost of 3.$ ,or ers )ue to the limitations in )ata availa1ility, ,hich is also %artly in reflection of a fin)in' from the literature that it is mainly not the la1or costs 1ut the Luality of man%o,er that matters ;(ournet an) 3ensman 2001C E)ler et al" 2001<" /n sum, the s%ecifications have the 3.$ 4$/ as a function of such varia1les of a host country as the ratios of %rivate an) %u1lic 3.$ investments, res%ectively to country6s G$P, the %ro%ortion of the num1er of %atents re'istere) 1y each country to 'lo1al total, mar et siDe ;G$P<, e7%ort orientation ;e7%orts<, the relative siDe of 3.$ man%o,er, an) the e7istin' stoc of 4$/ to G$P" The )etails of the mo)el are %resente) 1elo, in ta1le 1, an) it is estimate) for the ,hole ,orl) )ata ,ith a )ummy for the )evelo%e) or )evelo%in' countries, an) se%arately for )evelo%e) an) )evelo%in' countries"

Specification of the Regression

odels !for each countr" group# developed and developing$

The estimation metho)s use) in our stu)y are first %oole) or)inary least sLuare ;%oole) 9LS< estimation, fi7e)#effect %anel mo)el estimation, an) ran)om#effect %anel mo)el estimation" Then, to )etermine the mo)el amon' the three estimation metho)s, ,e a%%lie) the -reusch#Pa'an ;1+@0< L5 test 1et,een 9LS an) ran)om#effect %anel mo)el, an) the Eausman Test ,as a%%lie) 1et,een the fi7e)#effect an) ran)om#effect %anel mo)els to )etermine the most efficient one" The results of the %anel mo)els may suffer from a 1ias since the estimations yiel) incorrect stan)ar) errors if there is autocorrelation ,ithin each %anel 'rou%" To co%e ,ith this %ro1lem, ,e have use) the 8ool)ri)'e ;2002< test to chec autocorrelations ,ithin the %anel )ata" /f the test sho,s the e7istence of autocorrelations, ,e a%%lie) the 'eneraliDe) least sLuares ;GLS< estimation of -alta'i an) 8u ;1+++< to the ran)om#effect %anel mo)el, an) the (ochrane#9rcutt transformation to the fi7e)#effect %anel mo)el"

10

;1< Jaria1les, $ata an) Some $escri%tions 9ur country#%anel )ata set covers >@ countries an) time series of the 12 year %erio) from 1++: to 200A" 8e have a%%lie) the /54 stan)ar) to i)entify 2+ a)vance) countries an) 2+ )evelo%in' countries" Eo,ever, since )ata for some year are missin' for some countries, our )ata is of the un1alance) %anel ,ith 2B+ o1servations in )evelo%e) countries an) 1+1 o1servations in )evelo%in' countries" 0s sources for )ata, ,e have relie) on the UNES(9, /54, 8orl) /ntellectual Pro%erty 9r'aniDation ;8/P9<, an) 8orl) Tra)e 9r'aniDation ;8T9<" $efinitions an) )etails of the varia1le are %resente) in Ta1le 1"
%&'() *: +ariables and Sources ,sed in this WorJaria1le $escri%tion 3.$ investment 1y forei'n 5N(s ;1illion )ollars< 3.$ investment 1y local %rivate ca%ital ;1illion )ollars< 3.$ investment 1y %u1lic ca%ital ;1illion )ollars< Shares of %atent 'rants 1y country of ori'in in the ,orl) total Num1er of 3.$ human resource Stoc of 4$/ ;1illion )ollars< Gross )omestic %ro)uct ;1illion )ollars< E7%orts ;1illion )ollars< Po%ulation ;millions< 5ean ;+:6N0A6< $evelo%e) $evelo%in' countries countries AA"A :"@ 1,0A>"B *>B"@ B"0> 1*B,*@0 1>,>:@"B A*,B1+"* 1A,*@B"B 2:"A @@"2 A1"0 0"B* 12*,:BB *,121"0 2A,201"A >,+*2"> A1"+ $ata Source UNES(9 /nstitute for Statistics, Science . Technolo'y Statistics UNES(9 /nstitute for Statistics, Science . Technolo'y Statistics UNES(9 /nstitute for Statistics, Science . Technolo'y Statistics 8orl) /ntellectual Pro%erty 9r'aniDation ;8/P9<, Patent Statistics UNES(9 /nstitute for Statistics, Science . Technolo'y Statistics UN(T0$, 4$/ Statistics /54, 8orl) Economic 9utloo $ata1ase 8T9, Tra)e Statistics /54, 8orl) Economic 9utloo $ata1ase

R&D FDI 8e use 3.$ investment 1y forei'n ca%ital as a )e%en)ent varia1le" The UNES(9 /nstitute for Statistics ;U/S< has information a1out 3.$ investment an) human resource of 200 countries an) %u1lishes the FScience an) Technolo'y Statistics6 every year" /n this )ata, annual 3.$ investment 1y forei'n ca%ital is )efine) as F'ross )omestic e7%en)iture on 3.$ 1y source of fun)s6 in the %urchasin' %o,er %arity ;PPP< unit" To )erive the a1solute amount of money s%ent in each country, ,e have converte) the PPP )ollar unit )ata into current
11

)ollar unit usin' a conversion rate calculate) from nominal G$P an) PPP G$P )ata of /54" 8e then use) F3.$ investment 1y forei'n ca%ital in current )ollar unit6 or Fthe ratio of this to nominal G$P6 as the )e%en)ent varia1le in analysis" R&D Investment by Private and Public Capital The amounts of %rivate an) %u1lic 3.$ investments are ey in)e%en)ent varia1les, an) in 'eneral they re%resent the level of 3.$ infrastructure in the host country" These )ata are also from UNES(96s science an) technolo'y statistics" The section on F'ross )omestic e7%en)iture on 3.$ 1y source of fun)s6 %rovi)es the annual investment 1y each %rivate, %u1lic an) forei'n investor 1y PPP )ollar unit" /n this ,or , this PPP )ollar unit )ata ,as also

converte) into current nominal )ollar unit usin' the /546s conversion rate"
The Level of Technology by the shares in Patent registered 8e use %atent )ata as a %ro7y varia1le for the level of technolo'y" The %atent )ata is %rovi)e) 1y the ,orl) intellectual %ro%erty or'aniDation ;8/P9< in forms of annual )ata 1y country of ori'in, namely the nationality of the 5N( that o,ne) the 'rante) %atents" The e7act )efinition of the varia1le is the num1er of %atents re'istere) 1y each country6s firms 'lo1ally, in their o,n home an) forei'n countries6 %atent offices" /n re'ressions, this num1er is )ivi)e) 1y the total %atents re'istere) 1y all firms 'lo1ally" R&D Human Resource 0n em%irical stu)y of Kumar ;2001< an) several other survey#1ase) stu)ies use) the %ro%ortion of ,or ers en'a'e) in 3.$ as an in)e%en)ent varia1le to e7amine the hy%othesis that 3.$ 4$/ increases as the 3.$ human resource increases" The num1er of 3.$ human resource )ata use) in our stu)y is the sum total of researchers, technicians, an) other su%%ortin' staff num1ers %rovi)e) 1y the UNES(9 re%ort on science an) technolo'y statistics" /n re'ression mo)els, ,e use) Fthe ratio of the num1er of 3.$ human resource to %o%ulation"6 !"isting #toc$ of FDI Some stu)ies have su''este) that e7istin' overseas %ro)uction facilities or sales su1si)iaries of 5N(s are one of the im%ortant )eterminants of 3.$ 4$/ ;(ornet an) 3ensman, 2001C Lin' et al", 200><" 0nnual 4$/ inflo, an) stoc )ata are release) as %arts of
12

the 8orl) /nvestment 3e%ort %u1lishe) 1y UN(T0$" 8e use this stoc of 4$/ )ata in nominal million U"S" )ollar unit" /n re'ressions, its ratio to each country6s G$P is use)" %DP and !"ports 8e use) /546s 8orl) Economic 9utloo )ata1ase for G$P, ,hich is %resente) in 1illion )ollars" 8e have use) G$P to re%resent a siDe of country" E7%ort )ata are from the 8T96s /nternational Tra)e Statistics" /n the re'ressions, the ratio of e7%orts to G$P is use), ,hich can 1e inter%rete) as the )e'ree of o%enness in Kumar ;2001<"

;c< Some $escri%tions Ta1le 2 %rovi)e some 1asic information a1out the ey varia1les, an) )iscusses the 'eneral tren) in ey 3.$ an) 4$/ varia1les" (orrelations amon' ey varia1les are %resente) in the 0%%en)i7"

%&'() ./&: Composition of R&D Investment in Developed and Developing Countries $evelo%e) countries Share ;H< Share ;H< in 1++: in 200A >B"> >*"1 BA": B2"A $evelo%in' countries Share ;H< Share ;H< in 1++: in 200A 2+"1 B:"B >:"1 >2"* 0ll sam%le Share ;H< Share ;H< in 1++: in 200A **"@ *>"2 **"2 *2">

Private 3.$ Pu1lic 3.$ 4orei'n 3.$ >"> +"0 A"@ @"1 :"B @"> ; O 3.$ 4$/< Su1# Total +:": +>"A +2"+ +:"@ +>"B +:"B Note: 3.$s 1y hi'her e)ucation, %rivate non#%rofit or'aniDations, an) un#s%ecifie) sources are e7clu)e)"

%&'() ./': R&D# Patent# and Human Resource in Developed and Developing Countries $evelo%e) countries 5ean 5ean Gro,th ;+:6< ;0A6< rate ;H< ;+:6N0A6< 10@A 1*1B 2"*2 0"+> 1"12 2"@0 >1A *>1 #1"2* 0">: 0">+ #0"@@ :* +> B":2 0"0+ 0"1* *"01 $evelo%in' countries 5ean 5ean Gro,th ;+:6< ;0A6< rate ;H< ;+:6N0A6< 22 B*2 2@">2 0"1B 0"B0 1A"10 *B 21@ 1>"+0 0"21 0"B: >">: BB 1+ 1A"2: 0"02 0"0: :"@0 5ean ;+:6< A0: 0":: B*@ 0"** *B 0"0: 0ll sam%le 5ean Gro,th ;0A6< rate ;H< ;+:6N0A6< @A@ B"@2 0"A1 0"@1 BB> #0"B> 0"*@ #1">1 >A *"0: 0"10 1">1 13

Private 3.$ ;H of G$P< Pu1lic 3.$ ;H of G$P< 3.$ 4$/ ;H of G$P<

Share of Patent B"AA B"@1 2"@2 0"*1 0">+ :":@ 2">A 2"20 B"1* Grante) 3.$ Euman 3esource *2 :1 #0"+1 21 2* >"0+ B> *B 2"1A ; %erson %er 10,000 %eo%le< Note: 1" 0mounts of 3.$ are in current U"S" 1illion )ollars" 2" 0nnual 'ro,th rates in the ro,s for the share of %atents an) 3.$ human resource are a1out the 'ro,th rates of the a1solute num1er of %atents an) 3.$ %ersonnel"

R&D FDI &R&D Investment by Foreign '(Cs) 3.$ 4$/ ;or 4orei'n 5N(6s 3.$ investment< in the >@ sam%le countries ,as @">H of the avera'e total 3.$ investment in host countries in 200A, as sho,n in ta1le 20" 0nnual 'ro,th rate of 3.$ 4$/ avera'e) at *"0:H" 0s the inflo, increase), the share of 3.$ 4$/ in the host country6s G$P increase) as ,ell from 0"0:H in 1++: to 0"10H in 200A" (om%arin' the tren)s of 3.$ 4$/ in the sam%le )evelo%e) countries a'ainst the sam%le )evelo%in' countries, the inflo, of the a1solute amount of 3.$ 4$/ in )evelo%in' countries stee%ly increase) ,ith a 1A"2:H annual avera'e, ,hich is hi'her than the inflo, to )evelo%e) countries ;B":2H< ,ithin over t,elve years from 1++:" Eo,ever, there is still a hu'e 'a% on influ7 siDe so that the ratio of 3.$ 4$/ to G$P of the host )evelo%e) countries in the sam%le ,as 0"1*H, ,hich is over t,ice that of the sam%le from host )evelo%in' countries at 0"0:H in 200A" 0mon' the sam%le, U"K" an) 4inlan) are the most active countries in terms of 3.$ 4$/, es%ecially U"K"6s share of forei'n ca%ital in total 3.$ investment at 1AH" East Euro%e countries such as Eun'ary, Polan), an) 3ussia have a hi'her share amon' the sam%le )evelo%in' countries"

R&D Investment by Private and Public Capital Shares of 3.$ investment 1y 1oth %rivate an) %u1lic ca%ital too almost all of the 3.$ investment in 200A in the host country ;@A"AH<" The siDe of 3.$ investments ma)e 1y the %rivate sector increase) annually 1y B"@2H in >@ countriesKslo,er than that of forei'n ca%ital" (om%arin' the siDe of %rivate 3.$ investment in )evelo%e) countries a'ainst that in )evelo%in' countries, the sam%le )evelo%in' countries sho,e) an avera'e of B*2 1illion )ollars in 200A, much lo,er than that of the sam%le )evelo%e) countries ,ith an avera'e of 1"* trillion )ollars" Eo,ever, the annual 'ro,th rate of %rivate 3.$ investment, similar to the tren) for forei'n investments, ,as at 2@">2H for the sam%le )evelo%in' countries" This
14

'ro,th rate ,as much faster than that of )evelo%e) countries ,hich is only 2"*2H on avera'e" 0lthou'h %u1lic 3.$ investment sho,e) #0"B>H annual 'ro,th rate in the same timeframe, total 3.$ investment has 1een increasin' overall" 8hile there is still a 1i' 'a% in the siDe of %u1lic 3.$ investment, namely an avera'e of *>1 1illion )ollars in the )evelo%e) countries versus 21@ 1illion )ollars in the )evelo%in' countries, this 'a% ,as narro,er than that of %rivate 3.$ investment" 5oreover, the annual 'ro,th rate of %u1lic 3.$ investment on avera'e over a 12#year %erio) ,as 1>"+0H in )evelo%in' countriesKmuch hi'her than that of )evelo%e) countries at #1"2*H" This fact means that )evelo%in' countries are catchin'# u% ,ith )evelo%e) countries very fast in terms of 3.$ investment" 0 noticea1le fin)in' is that the lea)in' a'ents of 3.$ investment are )ifferent 1et,een the )evelo%e) an) )evelo%in' countries" 0s sho,n in Ta1le 2#0, amon' the 2+ )evelo%e) countries in 200A, %rivate sector#le) 3.$ activities in the host country too a >*"1H share of 3.$ investment" /n contrast, amon' the 2+ )evelo%in' countries for the same year, %u1lic sector#le) 3.$ too a >2"*H share, ,ith the %rivate sector ta in' a relatively lo,er share at B:"BH" #hares in %lobal Patent Registered &Level of Technology) 4or an o1&ective evaluation of the technolo'y level, ,e use the share 1y each country of ori'in in total %atents re'istere) 'lo1ally as a %ro7y varia1le" Ta1le 21 sho,s that the share 1y an avera'e country amon' a >@ countries sho,e) no 1i' chan'e at aroun) 2"*H over a 12# year %erio) since 1++:" Eo,ever, in 200A, the avera'e share for the 2+ )evelo%e) countries ,as at B"@1H, hi'her than 0">+H for the 2+ )evelo%in' countries" This result in)icates that there is still a 1i' technolo'y 'a% 1et,een )evelo%e) an) )evelo%in' countries" R&D Human Resource The annual 'ro,th rate of 3.$ human resource of the >@ sam%le countries over a 12# year %erio) from 1++: sho,e) an increase ,ith a 2"1AH annual avera'e" /n terms of the num1er of 3.$ %ersonnel to 10,000 %eo%le, the >@ sam%le countries sho,e) continuous increase from B> in 1++: to *B in 200A" Eo,ever, &ust as in the siDe of 3.$ investment, there is a 1i' 'a% 1et,een )evelo%e) an) )evelo%in' countries" S%ecifically, ,hile the 2+ )evelo%e) countries recor)e) an avera'e of :1 3.$ ,or ers for every 10,000 %eo%le in 200A, the 2+ )evelo%in' countries sho,e) a much lo,er level of an avera'e of 2* 3.$ ,or ers for every 10,000 %eo%le" 0mon' the )evelo%e) countries, 4inlan), Ja%an, an) Sin'a%ore sho,e) hi'hest intensity of 3.$ human resource %er 10,000 %erson, namely 10A,
15

AB an) A0, res%ectivelyC mean,hile, amon' the )evelo%in' countries, most countries sho,e) a smaller num1er of 3.$ %ersonnel of 10NB0 %er 10,000 %eo%le, in)icatin' that a 1i' 'a% e7ists 1et,een )evelo%e) an) )evelo%in' countries in terms of 3.$ human resource"
*"

EST/50T/9N 3ESULTS ;a< Estimation 3esults ,ith )ummies for )evelo%e) an) )evelo%in' countries

8e are %rimarily intereste) in sho,in' the %ossi1ly )ifferent characteristics of )ifferent income#level 'rou%s, such as 1et,een )evelo%e) countries an) )evelo%in' countries" Thus, ,e have create) a )ummy for )evelo%in', an) )evelo%e) country 'rou%, res%ectively an) then inserte) the )ummy an) its interaction terms ,ith other varia1les in the mo)el" The coefficients of the interaction terms in)icate the 'a% in the siDe of the im%acts 1et,een the t,o 'rou%s" 4or the first five columns of Ta1le B0, a )ummy ;Lo, stan)in' for lo,#income< for )evelo%in' country is use)" /n these mo)els, the coefficients of each varia1le in)icate the siDe of the im%acts of that varia1le in the )evelo%e) 'rou%, ,hile each sum of this coefficient an) the coefficient of the interaction term measure the siDe of the im%acts in )evelo%in' 'rou%" /n the last column of ta1le B0, the results ,ith the o%%osite )ummy of E/GE stan)in' for hi'her income or )evelo%e) countries is %resente)" 8hile loo s some,hat re)un)ant, these results ,ith alternative )ummy are %resente) to sho, ro1ustness of the results" 0ctually, the results %resente) in comin' ta1les of * an) > ,ith se%arate sam%les, the one ,ith )evelo%e) only an) the other ,ith )evelo%in' countries only, are also to chec an) sho, the ro1ustness"

%&'() 0&: Determinant of R&D FDI in 1hole sample 1ith countr"/group dummies
;1< 9LS Private 3.$PG$P Pu1lic 3.$PG$P Share of Patent 3.$ human resource PPo%ulation 4$/ stoc PG$P #0"02+* ;#2"B><QQ 0"1>>@ ;>"0:<QQQ #0"00>2 ;#>":1<QQQ 0"1:A* ;>"1B<QQQ 0"000B ;2"0:<QQ 2"A* B"2: 1"+A B"*B J/4 *":B ;2< 4E 0"0*2> ;2"01<QQ #0"100+ ;#2"B><QQ #0"0001 ;#0"0A< 0"10@+ ;2"0@<QQ 0"0001 ;0"+2< ;B< 3E 0"02>* ;1":0< #0"0210 ;#0">A< #0"002: ;#1"AB<Q 0"11+> ;B"10<QQQ 0"0001 ;0"@*< ;*< 4E#03;1< 0"0:0B ;2"BB<QQ #0"0++: ;#2"0:<QQ #0"000: ;#0"1@< 0"0A+> ;1"11< #0"0002 ;#0"+1< ;>< 3E#03;1< Lo, 0"0B*: ;2"1B<QQ #0"0B00 ;#0"@B< #0"00B* ;#2"2@<QQ 0"11@A ;2"@A<QQQ 0"0000 ;#0"0>< ;:< 3E#03;1< Ei'h #0"01*@ ;#0"B2< 0"0A2: ;1":@<Q #0"0020 ;#0"2:< 0"11@A ;2"@A<QQQ 0"0000 ;#0"0><

16

E7%ortPG$P lo' of G$P )ummy;Lo,< )ummy;Ei'h< Private .$PG$P Q)ummy;Ei'h P Lo,< Pu1lic 3.$PG$P Q)ummy ;Ei'h P Lo,< Share of Patent Q)ummy;Ei'h P Lo,< E7%ortPG$P Q)ummy;Ei'h P Lo,< lo' of G$P Q)ummy;Ei'h P Lo,< (onstant Rear )ummy Num1er of o1s 32 Eausman Test Note:

#0"000A ;#2"A2<QQQ 0"010@ ;2"@1<QQQ 0"2@BB ;B"02<QQQ

2"AB 1"*@

0"0001 ;0"1:< #0"00>> ;#0"2@< ;)ro%%e)<

#0"0001 ;#0"*>< #0"00*: ;#0">@< #0"1+10 ;#1"B><

0"000A ;1"21< #0"02>+ ;#1"*+< ;)ro%%e)<

#0"0001 ;#0"1A< #0"002A ;#0"B>< #0"0A2+ ;#0"*:<

0"000* ;0"@A< #0"002A ;#0"BA<

0"0A2+ ;0"*:< 0"100: ;2"00<QQ #0"1A*0 ;#B"B@<QQQ #0"0100 ;#1"1A< 0"000+ ;2"0+<QQ #0"01A+ ;#B"21<QQQ #0"1+1* ;#2"@*<QQQ Res *2@ 0"*:B: #0"0@2+ ;#1":2< 0"1:1B ;2"*:<QQ #0"0001 ;#0"01< 0"0002 ;0"2:< 0"01:@ ;1"1@< 0"00*0 ;0"02< Res *2@ 0"1*11 #0"0*>+ ;#0"+@< 0"0@+1 ;1">>< #0"0022 ;#0"2>< 0"000> ;0"@A< 0"00A> ;0"@>< 0"12+2 ;0"+@< Res *2@ 0"B*B0 1@"1> ;0"A*+2< #0"0:A* ;#1"0:< 0"1*:2 ;2"02<QQ 0"000A ;0"0A< #0"000> ;#0">:< #0"00@B ;#1"B2< #0"1B0+ ;#+">1< Res BA0 0"0+11 #0"0*+* ;#1"0B< 0"102A ;1"@1<Q 0"001* ;0"1@< 0"000> ;0"@*< 0"0001 ;0"01< 0"0+12 ;0"A0< Res *2@ 0"B>:+ 2*"+0 ;0"B021< 0"0*+* ;1"0B< #0"102A ;#1"@1<Q #0"001* ;#0"1@< #0"000> ;#0"@*< #0"0001 ;#0"01< 0"01@* ;0"1:< Res *2@ 0"B>:+ 2*"@> ;0"B0**<

1" The )e%en)ent varia1le is the ratio of 3.$ 4$/ to G$P 2" /n ;1<N;><, Lo, is a )ummy that ta es 0 for )evelo%e) countries, an) 1 for )evelo%in' countries, ,hile in ;:< Ei'h is a )ummy that ta es a value of one for )evelo%in' countries" B" t#Jalues are in %arentheses for 9LS an) 4Es" D#values are in %arentheses for 3Es" P#values are in %arentheses for Eausman test" *" QQQ, QQ, an) Q in the cells in)icate the levels of si'nificance of 1H, >H, an) 10H, res%ectively"

%&'() 0': Determinant of R&D FDI in Developed Countries ;1< 9LS J/4 Private 3.$PG$P Pu1lic 3.$PG$P Share of Patent Grants 3.$ human resourcePPo%ulation 4$/ stoc PG$P #0"0BB* ;#1"+*<Q 0"1*>0 ;B"*0<QQQ #0"00>2 ;#*"B1<QQQ 0"1+10 ;B">:<QQQ 0"0002 ;1"0*< B"+* *"0> 2"B2 B"1> *"1*

;2< 4E#03;1< 0"0:0* ;1"@A<Q #0"111@ ;#1"@><Q #0"0010 ;#0"2>< 0"0B0@ ;0"B1< #0"000B ;#1"0A<

;B< 3E#03;1< 0"0B:@ ;1"A1<Q #0"0*B* ;#0"+1< #0"00BB ;#1"::<Q 0"120@ ;1"AB<Q #0"0001 ;#0":B< 17

E7%ortPG$P lo' of G$P (onstant Rear )ummy Num1er of o1s 32 Eausman Test Note:

#0"000: ;#1">:< 0"011: ;2"2A<QQ #0"2112 ;#2"B2<QQ Res 2BA 0"B2>>

B"@0 1"AA

0"0010 ;1"2*< #0"0A2* ;#2"2><QQ #0"1@10 ;#A"+2<QQQ Res 20@ 0"01B0

0"0002 ;0"*2< #0"001: ;#0"1>< 0"0A0+ ;0"B@< Res 2BA 0"1@>2 1*"B1 ;0":*>1<

1" The )e%en)ent varia1le is the ratio of 3.$ 4$/ to G$P 2" t#Jalue is in %arentheses for 9LS an) 4Es" D#value is in %arentheses for 3Es" P#value is in %arentheses for Eausman test" B" QQQ, QQ, an) Q in the cells in)icate the levels of si'nificance of 1H, >H, an) 10H, res%ectively"

%&'() 0C: Determinant of R&D FDI in Developing Countries Private 3.$PG$P Pu1lic 3.$PG$P Share of Patent Grants 3.$ human resourcePPo%ulation 4$/ stoc PG$P E7%ortPG$P ;1< 9LS 0"0>:1 ;2">><QQ #0"011+ ;#0">1< #0"00+A ;#2"1B<QQ 0"1B*: ;>"A1<QQQ 0"000> ;B"+A<QQQ 0"0001 1"A* 2"00 B"1* *"2+ 2"A0 ;2< 4E#03;1< #0"0:A2 ;#1":0< 0"0>>: ;1"A1<Q #0"0000 ;#0"00< 0"2B1@ ;2"*:<QQ 0"000* ;1"B+< 0"000> ;B< 3E#03;1< 0"00*> ;0"1@< 0"0:00 ;2"*B<QQ #0"00B> ;#0"A*< 0"102+ ;B"2@<QQQ 0"000* ;2"2*<QQ 0"0001 18

J/4 B"0*

;0"A0< lo' of G$P (onstant Rear )ummy Num1er of o1s 3

2

;0"@1< 2"1+ #0"00+2 ;#0":@< #0"0@2* ;#>"A:<QQQ Res 1:2 0"BA+0

;0">0< #0"00*: ;#1"*2< 0"0>:1 ;1"0:< Res 1+1 0"*+1+ 2:"*@ ;0"11A*<

#0"00A1 ;#B"A*<QQQ 0"0+@B ;B"01<QQQ Res 1+1 0"*+0:

Eausman Test Note:

1" The )e%en)ent varia1le is the ratio of 3.$ 4$/ to G$P 2" t#Jalue is in %arentheses for 9LS an) 4Es" D#value is in %arentheses for 3Es" P#value is in %arentheses for Eausman test" B" QQQ, QQ, an) Q in the cells in)icate the levels of si'nificance of 1H, >H, an) 10H, res%ectively"

No, the results of estimatin' the )eterminants for 3.$ 4$/ usin' the un1alance) %anel )ata of all >@ countries are %resente) in Ta1le B0" 4irst, the fi'ures for the variance inflation factors ;J/4< to chec the %ossi1le multi#collinearity %ro1lem are %resente) at the first column of the ta1le, an) they are all sho,n to 1e less than 10, in)icatin' no evi)ence of such %ro1lem" 3esults of the 4#Test an) -reusch#Pa'an L5 Test in)icate that a %oole) 9LS estimation is inefficient" 5ean,hile, results of the Eausman Test 1et,een a fi7e)#effect %anel estimation ;column 2< an) a ran)om#effect %anel estimation ;column B< in)icate that the latter one is 1etter ;*+O1@"1>, %O0"A*+S0"10<" Eo,ever, if autocorrelation e7ists ,ithin the 'rou%, stan)ar) errors ,ill 1e incorrectly estimate), causin' a 1ias %ro1lem" This %rom%te) us to run the 8ool)ri)'e test to &u)'e ,hether or not first#or)er autocorrelations e7ist in the )evelo%e) country %anel )ata" The result sho,s that )ata ,ithin the each 'rou% are first#or)er auto# correlate) at a 1H level of si'nificance ;FOB:"A>, %O0"000<" To reme)y the autocorrelation, ,e a%%lie) the (ochrane#9rcutt transformation on the fi7e)#effect %anel mo)el" 8e also a%%lie) the GLS estimation metho) of -alta'i an) 8u ;1+++< on the ran)om#effect %anel mo)el" These results are %resente) in (olumns ;*< an) ;><, res%ectively, of Ta1le B" 4inally, results of the Eausman test evaluates that a ran)om#effect mo)el ,ith 03;1< in column ;>< is 1etter than a fi7e)#effect mo)el ,ith 03;1<" No, our chosen results ;column >< of the ran)om#effect mo)el ,ith the GLS estimation metho) of -alta'i an) 8u su''est that in )evelo%e) countries, %rivate 3.$ an) 3.$ human resource %ositively an) si'nificantly influence 3.$ 4$/, ,hile the level of
19

technolo'y ne'atively an) si'nificantly" 0mon' the interaction terms of the )evelo%in' )ummy in the column >, only the interaction term ,ith the %u1lic 3.$ is si'nificant an) %ositive, ,hich means that the im%act of the %u1lic 3.$ is si'nificantly lar'er in )evelo%in' 'rou%, ,hereas it )oes not matter in )evelo%e) 'rou% as sho,n 1y the coefficient of the %u1lic 3.$ varia1le" /nsi'nificance of other interaction terms in mo)el > su''ests that there is no si'nificant )ifference 1et,een the )evelo%e) an) )evelo%in' 'rou% ,ith re'ar) to other varia1les" -ut, this )oes not tell us s%ecifically a1out the si'nificance of the im%acts of these varia1les in the )evelo%in' 'rou%, as the siDe of im%act in this )evelo%in' 'rou% is sum of the coefficient for each varia1le an) the associate) interaction term in mo)el >" 8e have to calculate test statistics for each of these sums" 0n alternative ,ay is to run another re'ression no, ,ith a )ummy ;E/GE< for )evelo%e) 'rou%, of ,hich the result is %resente) in mo)el : or the last column in ta1le B0" The result in mo)el : confirms the si'nificance of t,o varia1les of %u1lic 3.$ an) human resource, as ,ell as insi'nificance of the varia1le of the level of technolo'y an) the remainin' others, such as the siDe of mar et, e7%ort orientation ;o%enness<, an) 4$/ stoc " /n sum, the results in ta1le B0 su''est that in the )evelo%e) countries, %rivate 3.$ an) level of technolo'y are critically im%ortant, ,hereas in )evelo%in' country 'rou%, %u1lic 3.$ matter, an) that 3.$ human resources is eLually im%ortant in 1oth 'rou%s of countries" 3o1ustness of these fin)in's is chec e) 1y runnin' se%arate re'ressions for each 'rou%, res%ectively in ta1le B- an) B(" The correlation coefficients amon' varia1les in these t,o country 'rou%s are %resente) in Ta1le 01#0 an) Ta1le 01#-" ;1< Estimation 3esults ,ith the $evelo%e) (ountries The results usin' the un1alance) %anel )ata of 2+ )evelo%e) countries are %resente) in Ta1le B-" 0'ain, the fi'ures for the variance inflation factors ;J/4< to chec the %ossi1le multi#collinearity %ro1lem is %resente) at the first column of the ta1le, in)icatin' no evi)ence of such %ro1lem" 8ool)ri)'e test ;FO2*"+@, %O0"000<, an) Eausman ;*+O1*"B1, %O0":*>S0"10<, test in)icate that a ran)om#effect mo)el usin' the GLS estimation ;mo)el B< metho) is 1etter a'ainst the fi7e) effect mo)el ,ith (ochrane#9rcutt transformation ;mo)el 2<" No,, our chosen results of mo)el B sho, consistence ,ith the results in the %rece)in' ta1le of B0 as they confirms im%ortance of %rivate 3.$ investment, level of technolo'y an) human resource in )evelo%e) countries" The siDe of the coefficient of %rivate 3.$
20

investment in)icates that as the host )evelo%e) country6s local 3.$ investment ratio to G$P e7%an)s 1y 1H %oint, the ratio of 3.$ 4$/ to G$P is also increase) 1y 0"0BAH %oint" ;c< Estimation 3esults ,ith the $evelo%in' (ountries /n ta1le B(, the similar analysis usin' %anel )ata of the )evelo%in' countries confirm a'ain the results in ta1le B0, sho,in' some )ifference ,ith the )evelo%e) countries" The analysis usin' the )evelo%in' county %anel )ata ,as )ia'nose) as first#or)er autocorrelation 1y 8ool)ri)'e Test ;FO1@"BA, %O0"001T0"01<" 0fter a%%lyin' the reme)ies to correct the first#or)er autocorrelation, the Eausman test chose a ran)om#effect %anel mo)el ,ith the GLS estimation metho) ;mo)el B< as the 1etter one than the mo)el 2, namely the fi7e)#effect %anel mo)el ,ith (ochrane 9rcutt transformation ; *+O2:"*@, %O0"11A<" This chosen mo)el su''ests that it is not %rivate 1ut %u1lic 3.$ investment that matter in )evelo%in' country 'rou%" This result is also consistent ,ith the results ,ith the ,hole sam%le an) a )ummy for )evelo%in' countries in the ta1le B0, sho,in' the si'nificantly )ifferent ;%ositive< siDe of this varia1le in the )evelo%in' country 'rou%" The im%acts of other varia1les, li e %rivate 3.$ an) level of technolo'y are not si'nificant, ,hereas the varia1le of 3.$ human resource is si'nificant, ,hich confirms the im%ortance of 3.$ man%o,er in attractin' 3.$ 4$/ in 1oth 'rou%s of )evelo%e) an) )evelo%in' countries" The overall im%ortance of %u1lic 3.$ is consistent ,ith the fact sho,n in ta1le 20 that the share of %u1lic 3.$ investment in total 3.$ in a )evelo%in' country is much hi'her on avera'e ;>2"*H< than in the )evelo%e) countries ;B2"AH<" 3ea)in' from the coefficient of the column B, ,e can infer that 1H %oint increase of this ratio lea) to 0"0:H %oint increase of the ratio 3.$ 4$/ to G$P" ;)< $iscussion /n sum, the a1ove results seem to reveal some,hat )ifferent nature of 3.$ 4$/ in )evelo%e) vs" )evelo%in' countries" 5N(s6 3.$ 4$/ in )evelo%e) economies seems to tar'et local technolo'y mar et ;3.$ mar et< an) to a)vance further their technolo'y" Given such nature, they ,oul) 1e also concerne) a1out %ossi1le com%etition effect ,ith local technolo'y as sho,n 1y the ne'ative coefficient of the varia1le of level of local technolo'y" 9ur results thus seem to su%%ort the vie, that 5N(s invest on 3.$ overseas to access the country6s lo,#level technolo'y mar et usin' their a)vance) technolo'y ;5ansfiel) et al", 1+A+<, rather than the o%%osite vie, that the aim of 5N(s is to acLuire technolo'y from the hi'h#level technolo'y countries ;Pain, 1++A<" 9riente) to,ar) not %ro)uct 1ut 3.$ mar et,
21

they are not sensitive a1out the siDe of local %ro)uct mar et ;G$P< or %ro)uct e7%orts from

the host countries 1ut are attracte) 1y the siDe of local technolo'y mar et ,hich can 1e re%resente) 1y the varia1le of %rivate 3.$ activity" /n contrast, 5N(s6 3.$ in )evelo%in' countries )o not care much a1out 3.$ activities or technolo'y level of local %rivate sector, as their 'oal is not to tar'et local technolo'y mar et 1ut to mo)ify their o,n %ro)ucts or technolo'y for local or e7%ort mar et" 3ather, they mi'ht 1e concerne) ,ith the %ossi1le lea a'e of their technolo'y to local %rivate firms ,ho are intereste) in scannin' forei'n technolo'y sources in the environment of loose %rotection of /P3s" 5N(s6 3.$ 4$/ in )evelo%in' countries is attracte) to,ar) localities ,here some 3.$ infrastructure is cultivate) o,in' to %u1lic 3.$ investment" The insi'nificance of G$P an) e7%ort may1e 1e consistent ,ith reasonin' that this technolo'ically#mo)ifie) %ro)ucts are neither 100H sol) in local mar et ;G$P< nor 100H e7%orte), 1ut mi7e) 1et,een these t,o mar ets" This relative )ivision 1et,een e7%ort an) local mar et orientation is also chan'in' over time" 4or e7am%le, in (hina after the o%en )oor %olicy, 5N(s ;es%ecially those from Ja%an, Korea, an) Tai,an< use) (hina as a %ro)uction site for re#e7%ort )urin' the early sta'e ;or 1+@0s an) 1++0s<, ,hile they are no, ;or since the 2000s< sellin' more in local mar et of (hina an) )oin' more local 3.$ for 1oth local an) e7%ort mar et
>"

SU5503R 0N$ (9N(LU$/NG 3E503KS

This %a%er is a1out fin)in' out the )ifferent )eterminants of the location of 3.$ 4$/" /t has con)ucte) a country %anel estimation usin' varia1les such as %rivate an) %u1lic 3.$ investment, level of technolo'y, mar et siDe, 3.$ human resource an) stoc of 4$/" /n the case of the host )evelo%e) countries, ,e fin) that 3.$ 4$/ is %ositively associate) ,ith %rivate 3.$ investment an) is ne'atively associate) ,ith level of local technolo'y" /n contrast, in case of the host )evelo%in' countries, ,e fin) that %rivate 3.$ investment an) level of technolo'y are not si'nificant )eterminant, ,hile %u1lic 3.$ in)uces 3.$ 4$/" Local 3.$ man%o,er is im%ortant in 1oth 'rou%s of countries" These fin)in's seem to reveal some,hat )ifferent nature of 3.$ 4$/ in )evelo%e) vs" )evelo%in' countries" 5N(s 3.$ 4$/ in )evelo%e) economies seems to tar'et local 3.$ mar et an) thus 1e concerne) a1out com%etition ,ith local technolo'y" /n contrast, 5N(s6 3.$ in )evelo%in' countries )o not care much a1out 3.$ activities 1y local %rivate sector,
22

as their 'oal is not to tar'et local technolo'y mar et 1ut to mo)ify their o,n %ro)ucts or technolo'y for local or e7%ort mar et" 8hile one o1vious %olicy im%lication is the im%ortance of con)uctin' your o,n 3.$ an) havin' more human resource availa1le to attract forei'n 3.$, this stu)y su''ests stron'ly that it is %rivate 3.$ in the case of )evelo%e) countries, an) %u1lic 3.$ in the case of )evelo%in' countries, that matters res%ectively" Thus, if they ,ant to attract 3.$ 4$/, the 'overnments of )evelo%e) countries nee) to thin a1out ho, stimulate %rivate 3.$ further rather than )oin' 3.$ themselves 1y %u1lic a'encies that mi'ht cro,) out %rivate 3.$ ;as sho,n 1y ne'ative coefficient of %u1lic 3.$ varia1le<" /n contrast, ,hen a country has a lo, level of technolo'ical )evelo%ment in %rivate sector, it mi'ht nee) to initiate %u1lic 3.$ first to in)uce %rivate one at later sta'es, 1ecause %rivate firms have no ,ea motivation or )are un)erta e 3.$ an) thus there ,ill 1e less cro,)in' out effect of %u1lic 3.$" Eo,ever, the %olicy ma ers in )evelo%in' countries shoul) also 1e a,are of %ossi1le lon'#term tra)e#off such that attractin' forei'n 3.$ to)ay mi'ht su%%ress tomorro,6s 3.$ activities of local firms ;Er en et al" 200><"

23

3E4E3EN(ES -alta'i, -" an) 8u, P" U" ;1+++<, VUneLually s%ace) %anel )ata re'ression ,ith 03;1< )istur1ancesW, Econometric Theory, 1>, %%"@1*#@2B" -as, (" Le an) Sierra, (" ;2002<, VFLocation versus Eome (ountry 0)vanta'es6 in 3esearch 0ctivities: Some 4urther 3esults on 5ultinationals,W Locational Strate'ies, Research Policy, B1, %%">@+#:0+" -lomstrXm, 5" ;1+@+<, Foreign Investment and #pillovers, Lon)onC 3outle)'e" -lomstrXm, 5 an) Ko o, 0 ;1++A<" VEo, forei'n investment affects host countriesW, Policy Research ,or$ing Paper, 8ashin'ton $"(": 8orl) -an " -orensDtein, E", Gre'orio, J"$" an) Lee, J"8" ;1++@<, VEo, )oes forei'n )irect investment affect economic 'ro,thYW, -ournal of International !conomics, *>, %%"11>#1B>" -reusch, T" S" an) Pa'an, 0" 3" ;1+@0<, VThe lan'ran'e multi%lier test an) its a%%lications to mo)el s%ecification in econometricsW, Revie. of !conomic #tudies, *A, %%"2B+#2>B" -uc ley, P"J" an) (asson, 5" ;1+A:<, The Future of the 'ultinational !nterprise, Lon)onC 5acmillan" -uc ley, P"J", (le'', J", 8an', (", an) (ross, 0"3"" ;2002<, V4$/, re'ional )ifferences an) economic 'ro,th: %anel )ata evi)ence from (hinaW, Transnational Corporations, 11;1<, %%" 1#2@" (ant,ell, J" an) Piscitello, L" ;2000<, V0ccumulatin' Technolo'ical (om%etence: /ts (han'in' /m%act on (or%orate $iversification an) /nternationaliDationW, /n)ustrial an) (or%orate (han'e, +;1<, %%"21#>1" (arlsson, -" ;200:<, Z/nternationaliDation of /nnovation Systems: 0 Survey of the LiteratureZ, Research Policy, B>;1<, %%">:#:A" (aves, 3ichar) E" ;1+A1<, VThe /n)ustrial Economics of 4orei'n /nvestmentW, !conomica, Ne, Series, Jol" B@, No" 1*+ ;4e1", 1+A1<, %%"1#2A" (aves, 3ichar) E" ;1+A*<, V5ultinational 4irms, (om%etition, an) Pro)uctivity in Eost# (ountry 5ar etsW, !conomica, Ne, Series, Jol" *1, No" 1:2 ;5ay", 1+A*<, %%"1A:# 1+B" (hamina)e, (" an) Jan', J" ;200@<, ZGlo1aliDation of Kno,le)'e Pro)uction an) 3e'ional /nnovation Policy: Su%%ortin' S%ecialiDe) Eu1s in -an'alore Soft,are /n)ustryZ, Research Policy, BA, %%"1:@*#1:+:"
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(hen, (hun', La,rence, (han', an) Rimin 2han', 1++>, VThe 3ole of 4orei'n $irect /nvestment in (hina6s %ost#1+A@ Economic $evelo%ment,W ,orld Development Jol" 2B, No" *, %%" :+1#A0B" (hes1rou'h, E" ;200B<, /pen Innovation The (e. Imperative for Creating and Profiting from Technology, -oston: Earvar) -usiness School Pu1lishin' (or%oration" (ornet, 5" an) 5" 3ensman;2001<, The Location of R&D in the (etherlands Trends0 Determinants0 and Policy, (P- Netherlan)s -ureau for Economic Policy 0nalysis, (P- $ocument, Jan Stol ,e' 1*, The Ea'ue" $unnin', John E" ;1+>@<, 1merican Investment in 2ritish 'anufacturing Industry0 Lon)on: 0llen an) Un,in" $unnin', John E" ;1+@0<, VTo,ar) an Eclectic Theory of /nternational Pro)uction: Some Em%irical Tests,W -ournal of International 2usiness #tudies0 Jol"11, No" 1, %%"+#B1" Economist /ntelli'ence Unit ;E/U< ;200*<, ZScatterin' the See)s of /nnovation,Z The Glo1aliDation of 3esearch an) $evelo%ment, Lon)on: The Economist /ntelli'ence Unit" E)ler, J", 4" 5eyer#Krahmer an) G" 3e'er;2001<, Z5ana'in' Technolo'y in the To% 3.$ S%en)in' (om%anies 8orl),i)e: 3esults of a Glo1al Survey,Z !ngineering 'anagement -ournal, 1B;1<, %%">#11" E)Luist, (" ;1++A<, #ystems of Innovation Technologies0 Institutions and /rgani3ations, Lon)on: Printer Pu1lishers" Er en, E", Kei&in, 5", an) LantDen)orffer, 4" ;200><, Z/m%rovin' the 3.$ /nvestment (limate: Shar%enin' a $ou1le#E)'e) S,or),Z Dutch 'inistry of !conomic 1ffairs, 3esearch Series, No" 0>0121" EtD o,ithD, E" an) Ley)es)orff, L" ;2000<, ZThe $ynamics of /nnovation: 4rom National Systems an) V5o)e 2W to a Tri%le Eeli7 of University#/n)ustry#Government 3elationsZ, Research Policy, 2+;B<, %%"10+#12B 4lori)a, 3" ;1++A<, ZThe Glo1aliDation of 3.$: 3esults of a Survey of 4orei'n#0ffiliate) 3.$ La1oratories in the US0,Z Research Policy, 2:;1<, %%"@>#10B" 4ors, Gunnar" ;1++@<, VLocatin' 3.$ 01roa): The 3ole of 0)a%tation an) Kno,le)'e# See in'W, /n The %eography of 'ultinational Firms0 -raunerh&elm P, E holm K ;e)s<" 3esearch /nstitute of /n)ustrial Economics: Stoc holm, %%" 11A[1B*"

25

Glo1erman, S" ;1+A+<, V4orei'n $irect /nvestment an) FS%illover6 Efficiency -enefits in (ana)ian 5anufacturin' /n)ustriesW, The Canadian -ournal of !conomics, 12;1<, %%" *2#>:" GuimMn, JMse;200@<, ZGovernment Strate'ies to 0ttract 3.$#/ntensive 4$/,Z %lobal Forum on International Investment, 2A#2@ 5ar 200@" Guellec, $" an) van Pottels1er'he, -" ;200*<, V4rom 3.$ to Pro)uctivity Gro,th: $o the /nstitutional Settin's an) the Source of 4un)s of 3.$ 5atterY W, C!2 ,or$ing Paper, No 0*P010, 5arch 200*" EI anson, L" an) No1el, 3" ;1++B<, Z4orei'n 3esearch an) $evelo%ment in S,e)ish 5ultinationals,Z Research Policy, 22;>#:<, %%"BAB#B+: Eymer, S"E" ;1+:0<, VThe /nternational 9%eration of National 4irms: 0 Stu)y of $irect 4orei'n /nvestmentW, Ph"$" )issertation, 5/T Press, 1+A:" /nDelt, 0" ;200@<, ZThe /nflo, of Ei'hly S ille) 8or ers into Eun'ary: 0 -y#%ro)uct of 4$/,Z The -ournal of Technology Transfer, BB, %%*22#*B@" Jin, 4uron', Lee, Keun, an) Kim, Ree#Kyoun' ;200@<, V(han'in' En'ines of Gro,th in (hina: 4rom E7%orts, 4$/ an) 5ar etiDation to /nnovation an) E7%ortsW, China and ,orld !conomy, Jol" 1:, no" 2, %%" B1#*+ Kin)le1er'er, ("P" ;1+:+<, 1merican 2usiness 1broad #i" Lectures on Direct Investment, Rale Univ" Press" Kuemmerle, 8" ;1+++<, Z4orei'n $irect /nvestment in /n)ustrial 3esearch in the Pharmaceutical an) Electronics /n)ustries: 3esult from a Survey of 5ultinational 4irms,Z Research Policy, 2@, %%"1A+#1+B Kumar, N" ;2001<, Z$eterminants of Location of 9verseas 3.$ 0ctivity of 5ultinational Enter%rises: The (ase of US an) Ja%anese (or%orations,Z Research Policy, B0, %%"1>+#1A*" Lee, Keun an) Kim, -yun'#yeon ;200+<, Z-oth /nstitutions an) Policies 5atter 1ut $ifferently for $ifferent /ncome Grou%s of (ountries: $eterminants of Lon'#3un Economic Gro,th 3evisite),Z ,orld Development, BA;B<, %%">BB#>*+" Lee, Keun an) Kim, Ree Kyoun' ;2010<, V/P3 an) Technolo'ical (atch#U% in Korea,W in Intellectual Property Rights0 Development0 and Catch45p 1n International Comparative #tudy, 9)a'iri, E" et al", ;e)s"<, 97for)

26

Levy, $avi) 5" . Terlec y&, Nestor E" ;1+@B<, ZEffects of Government 3.$ on Private 3.$ /nvestment an) Pro)uctivity: 0 5acroeconomic 0nalysis,Z The 2ell -ournal of !conomics, Jol" 1*, No" 2 ;0utumn, 1+@B<, %%" >>1#>:1" Lin'" R", 4loy), S" 8", an) -al)ri)'e, $" (" ;200><, VTo,ar)s a 5o)el of /ssue#sellin' 1y Su1si)iary 5ana'ers in 5ultinational 9r'aniDationsW, -ournal of International 2usiness #tudies, B:;:<, %%":BA#:>*" Li%sey, 3ichar) G" ;2000<, VNe, Gro,th theories an) Economic Policy for the Kno,le)'e EconomyW in Transition to the 6no.ledge #ociety0 3u1enson K&ell an) Eans G" SchuetDe ;e)s"<, 9tta,a" 5ansfiel), E", Teece, $", an) 3omeo, 0" ;1+A+<, V9verseas 3esearch an) $evelo%ment 1y US#-ase) 4irmsW, !conomica, Ne, Series, *:;1@2<, %%" 1@A#1+:" 5irDa, E", Girou), 0", Jalilian, E", 8eiss, J", 4reeman, N" an) Than, 5" ;200B<, Regionalisation0 Foreign Direct Investment and Poverty Reduction The Case of 1#!1(, 5ain 3e%ort, University of -ra)for)" Neary, J"P" ;1+++<, Z3.$ in $evelo%in' (ountries: 8hat Shoul) Governments $oYZ, University (olle'e $u1lin, Ecole PolytechniLue, Paris: (EP3 Nelson, 3" an) 8inter, S" ;1+@2<, 1n !volutionary Theory of !conomic Change, (am1ri)'e: Earvar) University Press" Pain, N" an) Lans1ury, 5" ;1++A<, V3e'ional Economic /nte'ration an) 4orei'n $irect /nvestment: The (ase of German /nvestment in Euro%eW, (ational Institute !conomic Revie., 1:0;@A<, %%" @A#++" Pearce, 3"$" ;1+++<, Z$ecentralise) 3.$ an) Strate'ic (om%etitiveness: Gloalise) 0%%roaches to Generation an) Use of Technolo'y in 5ultinational Enter%rises ;5NEs<Z, Research Policy, 2@, %%"1>A#1A@" 3osen1er', N" ;1+@2<, Inside the 2lac$ 2o" Technology and !conomics, (am1ri)'e: (am1ri)'e University Press" 3u'man, 0"5" ;1+@1<, V3esearch an) $evelo%ment 1y 5ultinational an) $omestic 4irms in (ana)aW, Canadian Public Policy 7, %%" :0*#:1:" Sim\oes, J" an) Neva)o, P" ;2001<, Z5NE (enters of E7cellence an) 0cLuisitions: Lon' Evolutionary Paths or (a%turin' 9%%ortunitiesY,Z Procee)in's of the 2Ath E/-0 (onference, $ec 2001, Paris"

27

Sun, E", an) Pari h, 0", ;2001<, ZE7%orts, /n,ar) 4orei'n $irect /nvestment ;4$/< an) 3e'ional Economic Gro,th in (hinaZ, Regional #tudies The -ournal of the Regional #tudies 1ssociation, B>;B<, %%"1@A#1+:" Tian, Uiao,en, Shuan'lin Lin, an) Jai /o Lo, 200*, V4orei'n )irect investment an) economic %erformance in transition economies: evi)ence from (hina,W Post4Communist !conomies Jol" 1:, No" *, %%" *+A#>10" UN(T0$ ;2000<, ,orld Investment Report, Ne, Ror an) Geneva: UN UN(T0$ ;2001<, ,orld Investment Report, Ne, Ror an) Geneva: UN UN(T0$ ;200><, ,orld Investment Report, Ne, Ror an) Geneva: UN Jernon, 3aymon)" ;1+::<, V/nternational /nvestment an) /nternational Tra)e in the Pro)uct (ycleW, The 8uaterly -ournal of !conomics, @0;2<, %%"1+0#20A" 8ol)e#3ufael, Remane ;200+<, Z$oes Pu1lic 3.$ (ro,) 9ut Private 3.$Y: 0 Note from Tai,an, 39(Z, -ournal of !conomic Development, B*;1<" 8ool)ri)'e, J" 5" ;2002<, !conometric 1nalysis of Cross #ection and Panel Data , 5/T Press" 8orl) -an ;2001<, Glo1al Economic Pros%ects an) the $evelo%in' (ountries 2001, 8ashin'ton, $"("C The 8orl) -an "

28

0%%en)i7 Ta1les
%&'() &*: Correlations of +ariables !Developed Countr" Sample$

1"00 0"1A 0"*A #0"2* 0"*2 #0"0* #0"0: 0"01 1"00 0":A 0">2 0"A: #0"20 #0"1B 0"BA 1"00 0"0@ 0"A: #0"1+ #0"10 0"1@ 1"00 0"2B #0"2> #0"2A 0">A 1"00 #0"1A #0"1B 0"12 1"00 0"@* 0"12 1"00 #0"20 1"00

%&'() &*: Correlations of +ariables !Developing Countr" Sample$

1"00 0"2B 0"*: #0"0@ 0"BB 0">1 0"*0 #0"BA 1"00 0">2 0"B: 0"12 0"1* 0"*0 0"2* 1"00 0"02 0"B> 0"*2 0"B> #0"12 1"00 0":2 #0"BB #0"1@ 0">@ 1"00 #0"0@ 0"00 0"1: 1"00 0"*A #0"** 1"00 #0"2: 1"00

29