Mediating Role of Absorptive Capacity on the Relationship between Foreign Direct Investment and Local Firm’s Performance



Abstract Views
403

Downloads
427

Citations

Share

Article Sidebar

Submitted 2021-10-05
Published 2021-10-31
10.24018/ejbmr.2021.6.6.1134

Abstract viewed = 403 times

Table of Contents

Article Main Content

There is little documentation on the role of absorptive capacity on the relationship between FDI and performance of firms. This paper investigates the mediating role of absorptive capacity on the relationship between FDI and performance of manufacturing firms in Kenya. The population of study comprised 100 companies registered with Kenya Association of Manufacturers that had over 10 percent foreign ownership as at the time of data collection in 2019. The respondents were the CEOs of organization or their designated officers. The study used a structured questionnaire to collect primary data. The respondent were required to indicate how the introduction of FDI impacted on organizations capital flow, advanced production technology, marketing expertise and management knowhow. They were also to indicate the extent their Organisation had invested in absorptive capacity and the effect absorptive capacity had on the relationship between FDI and local firm performance. Descriptive and inferential statistics were both used to analyze the data. The results revealed that absorptive capacity has statistically significant mediating effect on the relationship between FDI and firm performance. This imply that an incremental change in the absorptive capacity would generate growth in company’s performance. As such Kenyan and other sub-Sahara African countries government need to come up with polices geared to supporting improvement of firms absorptive capacities so as to spur the growth of their key sectors of the economy.

Keywords: Absorptive capacity, Firm Performance, Foreign Direct Investment

References

  1. W. M. Cohen, D. A. Levinthal, “Absorptive capacity: A new perspective on learning and innovation,” Administrative science quarterly. Ithaca, vol. 35, Issue. 1, pp. 128–152, 1990.
     Google Scholar
  2. R. Kneller, “Frontier Technology, Absorptive Capacity and Distance,” Oxford Bulletin of Economics and Statistics, vol. 67(1), pp. 1-23, 2005.
     Google Scholar
  3. R. Lenart, “Operationalization of Absorptive Capacity,” International Journal of Contemporary Management, vol. 1(3), pp. 86–98, 2014.
     Google Scholar
  4. H. Andrea, H. G. Carlos, “Measurement of knowledge absorptive capacity: An estimated indicator for the manufacturing and service sector in Colombia,” Revista Journal of Globalization, Competitiveness & Governability, Georgetown University, vol. 9 (2), pp. 16-42, 2015.
     Google Scholar
  5. K. Laursen, A.J. Salter, “The paradox of openness: Appropriability, external search and collaboration,” Research Policy, vol. 43, pp.867–878, 2014.
     Google Scholar
  6. C. Onyekwena, “Empirical investigation of the impact of Foreign Direct Investment on manufacturing firms and banks in Nigeria,” Unpublished PhD Thesis, University of Portsmouth Pallant, J. (2005). SPSS Survival Manual: A Step by Step Guide to Data Analysis Using SPSS for Windows (V.12), 2012.
     Google Scholar
  7. A. Lau, W. Lo, “Regional innovation system, absorptive capacity and innovation performance: An empirical study,” Technological Forecasting and Social Change, vol. 92, pp. 99-114, 2015.
     Google Scholar
  8. Kenya National Bureau of Statistics, 2017. Economic survey report 2017.
     Google Scholar
  9. M. Asuantri, B. Yasmin, “Foreign Direct Investment, absorptive capacity and technological innovation: Empirical evidence in developing economies,” Global conference on business & economics research. 2017. Online www.econ.upm.edu.my.
     Google Scholar
  10. E. Leman, G. Ismet, “The Effects of Foreign Direct Investment on R&D and Innovations: Panel Data Analysis for Developing Asian Countries. World Conference on Technology, Innovation and Entrepreneurship,” Procedia-Social and Behavioral Sciences, vol. 195, pp. 749-758, 2015. Online at www.sciencedirect.com
     Google Scholar
  11. C. Ricardo, G. Luisa, I. Simona, “Foreign Multinationals and domestic innovation: intra-industry effects and firm heterogeneity,” Research Policy, vol. 44 (3). pp. 596-609, 2015.
     Google Scholar
  12. P. S. Ilboudo, “Foreign Direct Investment and Total Factor Productivity in the Mining Sector: The case of Chile,” Economics Honors Papers, 18, 2014.
     Google Scholar
  13. E. Thorbecke, H. Wan, “Revisiting East (and South East) Asia’s Development Model,” Paper prepared for the Cornell Conference on Seventy Five Years of Development, Ithaca, NY, May 7-9, 2004.
     Google Scholar
  14. S. Chang, Y. Gong, S.A. Way, L. Jia, “Flexibility-oriented HRM systems, absorptive capacity,and market responsiveness and firm innovativeness,” Journal of Management, vol. 39(7), pp.1924–1951, 2013.
     Google Scholar
  15. S. Anwar, L. P. Nguyen, “Foreign direct investment and economic growth in Vietnam,” Asia Pacific Business Review, vol. 16(1-2), pp. 183-202, 2010.
     Google Scholar
  16. R. Kneller, P.A. Stevens, Frontier technology and absorptive capacity: evidence from OECD manufacturing industries, Oxf. Bull. Econ. Stat, 68 (1), 2006.
     Google Scholar
  17. X. B. Li, “Sources of external technology, absorptive capacity, and innovation capability in Chinese state-owned high-tech enterprises,” World Development, vol. 39(7), pp. 1240–8, 2011.
     Google Scholar
  18. G. Blalock, P.J. Gertler, “Learning from exporting revisited in a less developed setting,” Journal of Development Economics, vol. 75, issue 2, pp. 397-416, 2004.
     Google Scholar
  19. E. A. Codjoe, Foreign Direct Investment in Ghanaian Manufacturing: Exploring the Extent of Technology Transfer and Exporting Behaviour by FDI Firms. PhD Thesis, School of Oriental and African Studies (Unpublished PhD Thesis), 2012.
     Google Scholar
  20. M. D. Wanjere, J. Yabs, “A critical literature review on the link between Multinational Enterprises presence, Absorptive capacity and Competitive advantage of Firms,” Archives of Business Research, vol. 5(3), pp. 101-114, 2017.
     Google Scholar
  21. A. J. Glass and K. Saggi, “International technology transfer and the technology gap,” Journal of Development Economics, vol. 55, Issue 2, April 1998, pp. 369-398, 1998
     Google Scholar
  22. Kinoshita, R&D and technology spillovers through FDI: innovation andabsorptive capacity, University of Michigan William Davidson Institute Working Paper, No. 2775, 2001.
     Google Scholar
  23. J. Damgaard, Measuring FDI & its Impact on the Danish Economy; unpublished PhD Thesis, University of Southern Denmark, 2011.
     Google Scholar
  24. D. K. Kombo, L. A. Tromp, Proposal and thesis writing: An introduction. Nairobi: Paulines publications Africa, 2009.
     Google Scholar
  25. A. Shabarati, J. Jawad, N. Bontis, “Intellectual capital and business performance in pharmaceutical sector of Jordan,” Management Decision Journal, vol. 48 (1), pp. 105-13, 2010.
     Google Scholar
  26. R. Cabrita, N. Bontis, “Intellectual capital & business performance in Portuguese banking industry,” International Journal of Technology Management, vol. 43, pp. 212-237, 2008.
     Google Scholar
  27. C. R. Kothari, Research Methodology: Methods and Techniques. New Delhi, India: New Age International Publishers. Second revised edition, 2014.
     Google Scholar
  28. C. Brooks, Univariatetime series modelling and forecasting, Introductory Econometrics for Finance. 2nd Ed. Cambridge University Press. Cambridge, Massachusetts, 2008.
     Google Scholar
  29. G. P. McCabe, D. S. Moore, B.A. Craig, Introduction to the practice of statistics. 8. ed. New York, NY: W.H. Freeman and Co, 2014.
     Google Scholar
  30. H. A. Miot, “Assessing Normality of Data in Clinical and Experimental Trials,” Journal Vascular Brasileiro , vol. 16(2), 2017.
     Google Scholar
  31. O. M. Mugenda, A. G. Mugenda, Research Methods. Quantitative and Qualitative Approaches. Nairobi: African Centre for Technology StudiesPress, 2003.
     Google Scholar
  32. L. R, Zientek, N. Kim, K. Amanda, „All Possible Subjects for MANOVA and Factorial MANOVAs: Less than a Weekend Project,” International Journal of Adult Vocational education and technology, vol. 7 (2), 2016.
     Google Scholar
  33. J. F. Hair, R. E. Anderson, R. L. Tatham, W.C. Black, Multivariate data analysis, 5th Edition, Upper Sadddle River: NJ, Prentice Hall, 2008.
     Google Scholar
  34. B. G. Tabachnick, L.S. Fidell, Using multivariate statistics, (6th ed.). Boston: Pearson, 2013.
     Google Scholar
  35. T. M. Muhammad, R. Kashif, “Does Foreign Direct Investment Influence Economic Growth and Human Capital of Host Countries? A Review of Empirical Evidence,” World Applied Sciences Journal, vol. 21 (8), pp. 1116-1121, 2013.
     Google Scholar
  36. S.S. Pedro, R.M. Jorge, G.G.V. Jose, “Absorptive capacity from FDI in Spanish Manufacturing firms,” International Business Review, Elsevier, vol. 23(2),pp. 429-439, 2014.
     Google Scholar
  37. L.B. Hamida, L. Piscitello, “The impact of foreign Research and Development activities on the MNC’s performance at home: evidence from the case of Swiss manufacturing firms”, retrieved from Revue d'économieindustrielle URL: http://journals.openedition.org/rei/5613, 2013.
     Google Scholar