The purpose of this thesis is to examine the impact of various channels of
technology spillovers on local innovative capacity at national and firm level. At
national level, the thesis investigates the drivers of Malaysia‟s innovative
capacity and the effect of international external sources on innovative
capacity. At firm level, this thesis examines the impact of FDI on the
innovation progress and studies whether multinational corporations (MNCs)
can act as catalysts to stimulate local firms‟ innovation activities in Malaysia.
Via a case study analysis at firm level, this thesis focuses on knowledge
transfer through backward linkages established between MNCs and their local
Time series data analysis is conducted to provide empirical evidence of the
effect of FDI spillovers on Malaysia‟s innovative capacity at national level.
Additionally, a case-study approach is adopted to investigate the impact of
vertical FDI spillovers on the innovation performance of local Malaysian firms.
The key findings of the study reveal that export-related spillovers are
positively associated with Malaysia‟s innovative capacity, whereas importrelated
spillovers play a minor role in local innovation. The findings also
indicate that there is no significant correlation between economic
development and local innovation, which suggests that strong economic
growth is not a necessary condition in order for Malaysia to enhance its local
innovative capacity. The results suggest that there is strong evidence of the
importance of foreign innovation activities to local innovative capacity at
national level. In contrast, knowledge spillovers measured by FDI inflows have
no significant impact on local innovative capacity. The results showed that FDI
might be constrained by the fact that spillovers are more likely to take place
through vertical relationships than horizontal relationships.
At firm level, the study suggests that knowledge and technology can be
diffused through high-quality and standard requirements imposed by MNCs,
the assessment and feedback and training programmes offered by MNCs to
local suppliers, as well as the production process itself. These results extend
the existing literature on national innovative capacity and validate earlier
theoretical and empirical research on vertical spillovers. The findings from the
thesis also have important policy and managerial implications with regard to
the impact of FDI on host developing countries.
A Doctoral Thesis. Submitted in partial fulfillment of the requirements for the award of Doctor of Philosophy of Loughborough University.