Factors determining supply linkages between transnational corporations and local suppliers in ASEAN.

Abstract

NoA significant potential beneficial impact of foreign direct investment arises from a foreign affiliate's propensity to purchase inputs from suppliers in the host economy. This issue is of particular interest where the host is a developing country and the linkage is likely to contribute to the development of local suppliers. We compare variations in local input linkages across four countries: Cambodia, Malaysia, Thailand and Viet Nam, all member countries of the Association of South-East Asian Nations (ASEAN). Using multiple linear regressions, our findings indicate that the degree of local input linkages is highest when foreign affiliates perform a strategic role in the transnational corporation network and are embedded in the host economy. Non-firm factors are also important determinants, especially the industry of investing firms and the existence of a supply base. Building on the findings, a series of policies to enhance supplier-foreign affiliate linkages are proposed