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Contents Introduction

Two possible channels of technology spillover from MNEs to local firms are investigated: diffusion of technological knowledge in the same industry group, and the demand linkage effect where MNEs and local firms are vertically linked in the supply and demand for intermediate goods. Empirical results suggest that in the machinery industry, both spillover and linkage effects exist from MNEs to local suppliers while in resource-based industries, there are negative linkage effects. In resource-based industries, foreign plants are more likely to compete with local producers in the final goods market than the machinery industry. On the other hand, in machinery industries, when foreign plants increase their purchases, local suppliers make use of scale economies and increase productivity. In other words, the relationship between local and foreign plants is complemented.