Foreign Investment Economic Growth and Technology Transfer in the Republic of China

This paper examines the impact of foreign direct investment on the transfer of technology to the Republic of China (Taiwan). Using a macroeconomic approach based on aggregate statistical data and a macroeconomic approach based on a questionnaire survey of firms, the study finds a positive and significant association between foreign direct investment and industrial productivity (as a surrogate for the effects of technology transfer). Part of the positive effect on productivity results from externalities associated with leakage of foreign technology into domestic firms. The paper considers factors contributing to the absorption of technology by Taiwanese enterprises and reports qualitative findings in support of the macroeconomic results.