MULTINATIONAL CORPORATIONS, TECHNOLOGY AND EMPLOYMENT

Transcription

1 MULTINATIONAL CORPORATIONS, TECHNOLOGY AND EMPLOYMENT This book deals with an important issue in development economics: the role of multinational corporations in technical progress and employment generation in the host developing countries. This book begins with a critical and systematic survey of the theories of foreign direct investment. The neoclassical, neo-technology and eclectic theories are critically examined in some detail. This book then goes on to discuss the production, transfer and diffusion of technology by multinational corporations. The case in point is Hong Kong manufacturing in which 369 firms, both foreign and local, were surveyed. It is found that the presence of multinational corporations does have the effect of speeding up the rate of technical progress. Foreign firms in Hong Kong while they do not tend to produce more technologies do have a higher capacity to offer training and to transfer and diffuse technologies, compared with local firms. The controversial issue of the choice of technology by multinational corporations is taken up next. There is no clear evidence that multinational corporations tend to choose 'inappropriate' technology, and have a lower employment creation capability. On the other hand, it does not seem to be true that foreign firms tend to have a higher propensity to export and therefore a greater effect on employment generation. Results on the choice of technology are also reported for Indonesia, Malaysia, Taiwan and Thailand in Asia. While there is some evidence that multinational corporations tend to choose more capital-intensive technology than local firms in Indonesia and Thailand, this is not the case for Malaysia and Taiwan. Lastly, this book turns to discuss the newly arisen phenomenon of multinational corporations from a developing country. Hong Kong being the developing country which has the largest

2 amount of foreign direct investment is again the case in point. Special attention has been paid to the discussion of the differences in characteristics and behaviour between developedcountry and developing-country multinationals. The author Dr Edward K.Y. Chen is Director of the Centre of Asian Studies at the University of Hong Kong. He received his B.A. and M.Soc.Sc. from the University of Hong Kong and his D.Phil. from the University of Oxford. He has been Visiting Fellow in Economics at Yale University and Visiting Professor of Economics at the University of California, Davis. He is the author of several books including Hyper-Growth in Asian Economies, and has published many articles on economic growth and development in various academic journals.

3 Multinational Corporations, Technology and Employment EDWARD K.Y. CHEN University of Hong Kong

4 For Rosie Edward K.Y. Chen 1983 Softcover reprint of the hardcover 1st edition All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First published 1983 by THE MACMILLAN PRESS LTD London and Basingstoke Companies and representatives throughout the world ISBN ISBN (ebook) DOI /

5 Contents ~~ru~ ~ List of Figures Preface Acknowledgements 1 Introduction 1 The Purpose of Study 1 The Scope of Study 2 Foreign Direct Investment in Hong Kong 5 The Subject Matter of this Book 7 Methodology and Data 12 2 Theories of Foreign Direct Investment 16 Macro-economic Theory of Foreign Direct Investment 17 Oligopolistic Models of Foreign Direct Investment 20 Location Theory 25 Product Life Cycle Theory 26 Internalisation Theory 29 An Eclectic Theory of International Production 32 Motivations of Foreign Investment: the Survey Approach 35 3 The Production and Transfer of Technology 43 The Rate of Technical Progress 43 Foreign Investment and Technical Progress 49 The Production of Technology 51 The Transfer of Technology 63 Conclusion 66 xi xiii xv v

6 vi Contents 4 The Diffusion of Technology 69 Diffusion in the Process of Technological Change 69 The Determinants of the Rate of Diffusion 71 A Model of Diffusion 74 Technical Progress and Diffusion 84 Inter-industry Differences in the Rate of Diffusion 87 Conclusion 91 5 The Choice of Technology and Employment 94 Economic Growth and Employment in Hong Kong 94 The Choice of Technology 96 Multinational Corporations and the Choice of Technology 102 MNCs and the Choice of Technology in Hong Kong Manufacturing 104 Adaptation of Technology MNCs, Export, and Employment 121 MNCs and Manufacturing for Export 122 Export Expansion and Employment Generation Multinationals, Technology and Employment in Some Asian Countries 141 Indonesia 141 Malaysia 145 Taiwan 150 Thailand 156 Conclusion The Rise of Third World Multinationals: Hong Kong's Foreign Direct Investment in Manufacturing 166 The Rise of Third World Multinationals 166 Hong Kong's Foreign Direct Investment in Manufacturing 172 The Motivations for Investment and Reasons for Survival: Some Survey Results 188 In Search of a Theory of Third World Multinationals 196

7 Contents vii 9 Summary and Conclusion 205 Appendix A: Questionnaire for the Study of MNCs in Hong Kong 211 Appendix B: Questionnaire for the Study of Hong Kong MNCs 216 Bibliography 223 Index 243

8 List of Tables 1.1 Percentage share of major industries in Hong Kong's domestic exports, Overseas investment in Hong Kong manufacturing by industry Overseas investment in Hong Kong manufacturing by country Size of sample and response rates An eclectic theory of foreign direct investment Investment factors in Hong Kong: American investors Investment factors in Hong Kong: Japanese investors Investment factors in Hong Kong: British investors Investment factors in Hong Kong Technical progress and capital-labour substitution in four industries Technical progress and foreign investment in selected industries Expenditure on R & D and on training, R & D and training in the textiles industry by type of firm R & D and training in the garment industry by type offrrm R & D and training in the plastics and toys industry by type of firm R & D and training in the electronics industry by type offrrm Transfer of technology by type of firm and by industry Technology diffusion: textiles Technology diffusion: garments Technology diffusion: plastics and toys Technology diffusion: electronics 80 viii

9 List of Tables ix 4.5 Technology diffusion: four industries compared Determinants of diffusion: regression results Determinants of diffusion: additional regressional results Technical progress and diffusion Inter-industry differences in diffusion rates and other variables Unemployment rates in Hong Kong, Manufacturing employment in Hong Kong, Elasticity of substitution in Hong Kong manufacturing: foreign v. local finns Factor proportions in Hong Kong manufacturing: foreign v. local firms Adaptation of technology: foreign firms The share of multinational manufacturing frrms in the exports of manufactures from selected developing countries The share of majority-owned affiliates of US companies in manufactured exports from developing countries Export propensity of foreign and local frrms Direct labour requirements of Hong Kong's exports: selected years Total labour requirements of Hong Kong's exports: selected years Ratio of employment generated through manufactured exports to total and manufacturing labour force Comparison of capital intensity between foreign frrms and local frrms: Indonesian manufacturing Testing the differences between MNCs and local frrms: Malaysian manufacturing Capital intensity and exports propensity: foreign and local frrms in Taiwan manufacturing, Capital intensity of foreign frrms in Taiwan manufacturing, Employment effects of foreign frrms in Taiwan manufacturing,

10 X List of Tables 7.6 Cobb-Douglas production function estimation: Thailand manufacturing, CBS production function estimation: Thailand manufacturing, Capital intensity of foreign and local f111il'i in Thailand manufacturing Hong Kong investment in the manufacturing sector of Indonesia as in December Hong Kong investment in Malaysia Hong Kong investment in Malaysia by industry Hong Kong investment in Taiwan, Hong Kong investment in Taiwan by industry, January 1974 to July Hong Kong investment in Singapore by industry, 1966and Motivations for Hong Kong foreign direct investment Criteria for selecting host countries Advantages of Hong Kong multinationals over local ftnns in host countries Advantages of Hong Kong multinationals over other multinationals in host countries Technology and training in parent ftnn and subsidiaries 195

11 List of figures 2.1 A macro-economic theory of foreign investment The process of technological change A logistic diffusion function Choice of technology under neo-classical assumptions Choice of technology in the case of a frontier production function 1 00 xi

12 Preface This book deals with an important issue in development economics: the role of multinational corporations in the technology transfer and employment generation in the host developing countries. It also includes a chapter on the rise of multinational corporations from developing countries themselves. Although the focus in point is generally the manufacturing sector of Hong Kong, the conclusions should have wide implications. In fact, theoretical discussions and empirical findings on the subject of foreign direct investment in general are often referred to; a chapter on the experiences of some Asian countries has actually been included. I have always been interested in the study of technological change in economic growth and development, but had not developed any interest in the subject of multinational corporations. Then I was invited to participate in a research package on multinational corporations and host country technology and employment, sponsored by the Council for Asian Manpower Studies. Some preliminary explorations into the vast area of multinational corporation studies have led me to a confirmed belief that the subject of multinational corporations is fascinating and there is still plenty of scope to weld together the economics of technological change and the activities of multinational corporations. Moreover, my knowledge of multinational corporations was much broadened while I was Visiting Fellow at the Economic Growth Centre of Yale and had the opportunities of discussing the subject with Professors Gustav Ranis and Carlos Diaz-Alejandro. A large number of people and organisations have given me great support and assistance, without which this book could never have been completed. First of all, I am grateful to the Council for Asian Manpower Studies which has provided the generous financial support. I must thank Mr T.K. Tse of the Trade, Industry and Customs Department of the Hong Kong government and Mr J.P. Lee of the Chinese Manufacturers' xiii

13 xiv Preface Association (Hong Kong) for their assistance in the selection of sample firms in the surveys I conducted. Similarly, I must thank Mr S.K. Chan of the Hong Kong Productivity Centre, who has given me great assistance in the selection of the major innovations in Hong Kong manufacturing. In addition, a group of my students at the Economics Department of the University of Hong Kong worked very hard for me in the summer of 1979 in conducting interviews with firms. I am also grateful to Ms Becky Fung, Ms Elsa Leung and Ms Cathy Wong for their proficient typing of the manuscript under great time pressure. Last but not the least, I am so very grateful to my wife Rosie who undoubtedly has suffered most from my writing of this book. I have shut myself in my study for countless evenings and weekends writing this book, which time I should have been spending with her. The pressure on me was especially great because while I was writing this book I was at the same time given a new administrative responsibility, that of reorganising the Centre of Asian Studies at the University of Hong Kong. Rosie's contribution goes beyond just her forbearance of my hard work. She has read over the entire manuscript very carefully, leading to many improvements in style and presentation. University of Hong Kong June 1981 E.K.Y.CHEN

14 Acknowledgements I would like to thank the Oxford University Press for permission to reproduce Table 2.5; M.E. Sharpe, Inc. for permission to reproduce Tables 2.2, 2.3, and 2.4; and the Chinese University Press for permission to reproduce Tables 6.4 and 6.5. XV