This study incorporates the literature of spillovers from
foreign investment and the evolutionary approach which explains
the microlevel analysis of technology in developing countries,
to develop a framework on the impact of foreign investment in
Taiwan''s manufacturing sector. This study, at the firm level,
focuses on the modes and effects of technolog transfer by
foreign firms in Taiwan. At the industry level, we examine the
impact of foreign investment on local market structure,
research and deve- lopment, export performance, and the
productivity of local firms. The main findings can be
summarized as belows: First, the results indicate that the
determinants of technolgy transfer mode with foreign affliates
include the type of innovative strategy local firms take, the
type of competitive advantage local firms prusue, the home
country of foreign firms and the technological opportunity of
industry. Second, our findings also confirm that only the firms
with sufficient R&D capacity, can take advantage of spillover
benefits from foreign firms in Taiwan. Third, the analysis of
industry level shows there is a positive relationship between
participation of foreign firms and high levels of industrial
concentration. It also seems little evidence that the influence
of FDI mode of technlogy import stimulate the local R&D
activities. In contrast, foreign firms turn to act as catalysts
to the export activities of local firms. Finally, and more
importantly, we reject the spillover benefits hypothesis which
has been confirmed in many developing countries.