Foreign direct investment and development: The MERCOSUR experience

This article analyses the impact of foreign direct investment (FDI) on the MERCOSUR countries in the light of key variables such as productivity, foreign trade, innovation and growth. The macroeconomic impact is not found to have been significant, whereas the microeconomic effects seem to have been more noticeable, though varied. Generally speaking, the subsidiaries of transnational corporations operate at higher levels of productivity, engage in more international trade and are more innovative than local companies. The indirect effects of FDI, on the other hand, are less clear. The sign (positive or negative) and magnitude of productivity spillovers to domestic competitors vary, apparently depending on the characteristics of the local businesses and on the markets in which they operate. Finally, only in Brazil is there evidence of spillover effects —although those effects have been both positive and negative— on the export activities and innovation of local companies, as well as productivity spillovers from foreign subsidiaries to their national suppliers.