SIER Working Paper Series

Whereas all the latecomer economies have been open to invite FDI for their development, they found it tricky or hard to take advantage of FDI to bring up indigenous capabilities in production and innovation. Spillover effect of FDI does not occur if host countries do not focus on the linkages between FDI and the domestic economy. While observed to rely more on MNCs than South Korea, the success of Taiwanese catch-up is also supported by the eventual rise of indigenous. If this dimension of the global-local interface is wrongfully managed, MNCs will remain dominant in local economies, which might lead to premature de-industrialization or a middle-income trap. Thus, managing the global-local interface is a key determinant of building up technological capabilities and long-term success of latecomer economies. This paper will elaborate the importance of local value-added, knowledge and ownership, drawing upon several cases, such as several resource sectors in Chile and Malaysia, auto sectors in Thailand, Malaysia, China and Korea, and the three IT hubs of Shenzhen, Penang and Taipei in Asia.

Keywords: Global-local Interface, Innovation, FDI, Technological Capabilities, GVC, Middle-income Trap;

JEL classification: F14, F23, O19, O25, O38, O57, R58;