Accumulating technology and location spillovers among firms in Taiwan's electronics industry

Using firm-level panel data from the Taiwanese Census of Manufactures for 1986 and 1991 in the context of a modified selection model, we focus on three activities that contribute to the productivity growth of firms in the electronics industry: research and development, direct foreign investment and exports. In particular we address the issue of whether, in addition to the direct benefits of these activities, there are spillovers to other firms within the same four-digit industry or within the same geographical county. Our empirical results indicate that while the survival and direct productivity growth effects of R&D, exports and DFI are positive and statistically significant, intra-industry and geographical spillover effects are consistently present only for the export activity. That is, a firm's expected future TFP is positively and significantly affected by being located in a county and industry with more export activity. In addition, there is some evidence that the indirect effects generated by DFI firms, in the form of location spillover benefits to other firms, are also positive and significant. Finally, the empirical results indicate that the above direct and indirect benefits of the technological activities under study accrue principally to Taiwan's small and medium enterprises, rather than its large firms.