Working Paper nr 27: How important is trade and foreign ownership in closing the technology gap : evidence from Estonia and Slovenia

Abstract

This study focuses on the impact that the different methods of privatization implemented in Estonia and Slovenia had on the transfer of technology to foreign affiliates and local spillovers to the domestic economy. We develop a model that looks at three aspects of the problem: the importance of direct and indirect effects of FDI; the role of local absorptive capacity; and the role of trade in technology transfer. By utilizing information contained in the input-output tables of each country, we also differentiate between intra-industry and interindustry spillovers. We then estimate the impact that foreign ownership had on a panel of 363 manufacturing enterprises in Estonia and 1093 manufacturing firms in Slovenia covering the last half of the 1990s. The study finds that the method of privatization does influence the way a firm obtains technology from abroad: Estonia, which attracted a considerable amount of FDI through its privatization program, used this channel to gain direct access to global markets for technology, while Slovenia discouraged sales of State enterprises and encouraged firms to use trade to gain access to these markets.