FDI, production networks and firm behaviour : evidence from the South African automotive industry

Abstract

Firms in developing countries can learn advanced technology and management know-how through foreign direct investment (FDI). The extent (or the lack) of transmission of technology and knowledge depends on the structure of production networks. In the automotive industry, networks consist of vehicle assemblers and their layers of parts suppliers. We used the South African automotive industry as a case study to examine how the behaviour of assemblers and parts suppliers is linked. Based on statistical analysis using the original firm-level data, we found that the first-tier suppliers significantly increased their production with the regional expansion of automotive production. However, such growth linkages were not observed among lower-tier suppliers. Further, we obtained the suggestive evidence that only multinational (and not local) first-tier firms improved their production efficiency, indicating the importance of production networks among multinationals in transmitting technology.