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Cambridge Journal of Economics Advance Access originally published online on August 9, 2005
Cambridge Journal of Economics 2006 30(2):277-291; doi:10.1093/cje/bei059
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

The importance of clusters for spillovers from foreign direct investment and technology sourcing

Lisa De Propris and Nigel Driffield*

* Birmingham Business School and Aston Business School

Address for correspondence: Nigel Driffield, Aston Business School, Aston University, Birmingham B4 7ET, UK; email: n.l.driffield{at}aston.ac.uk

Abstract

This paper examines the link between cluster development and inward foreign direct investment. The conventional policy approach has been to assume that inward foreign direct investment (FDI) can stimulate significant clustering activity, thus generating significant spillovers. This paper, however, questions this and shows that, while clusters can generate significant productivity spillovers from FDI, this only occurs in pre-existing clusters. Further, the paper demonstrates that foreign-owned firms that enter clusters also appropriate spillovers when domestic firms undertake investment, raising the possibility that clusters are important locations for so called technology, or knowledge sourcing activities by MNEs.

Key Words: Cluster • Foreign direct investment • Productivity spillovers

JEL classifications: F23, R12

Manuscript received November 13, 2003; final version received December 13, 2004.


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