FDI and spillovers in the Swiss services/construction industry Interaction effects between spillover mechanisms and domestic technological characteristics

Purpose - The purpose of this paper is two-fold: to discuss the key factors determining foreign direct investment (FDI) intra-industry spillovers and to examine the presence and the extent of these spillovers in Switzerland, by testing them for the services/construction industry, where there is currently a scarcity of evidence. Design/methodology/approach - The assessment of spillovers calls for a detailed analysis of these effects according to the mechanisms by which they occur (namely, the increase in competition, demonstration effects, and worker mobility), and whether the size and the extent of spillovers depend on the interaction between their mechanisms and the existing technological capacities of domestic firms. Findings - The regression results are affirmative, in that domestic firms with high technological capacities appear to gain spillover benefits from FDI heightening competition, while mid-and low-technology firms benefit a lot from demonstration effects. In addition, spillovers for high-and mid-technology firms appear to be largely co-determined by the level of their human capital. Only domestic firms that invested heavily in absorptive capacity benefit from spillovers. Research limitations/implications - The evidence on spillover effects has not yet been conclusive. Hence, this paper proposes some components for a research agenda on FDI and intra-industry spillovers. Practical implications - The study provides insights for Swiss policy makers about how to promote the beneficial spillover effects of FDI. Originality/value - The process of spilling over is correctly described in a more satisfactory model and then the impact of this process is accurately identified.