Spillover (economics): Difference between revisions

In the same way that Financial crises and recessions can cause negative spillover effects through increased dependency between nations, trade policy can create positive spillover effects. It has been observed that one of the main positive spillover effects occurs as developing economies trade more with advanced economies leading to technology, information and investment flows<ref>{{cite book |last1=Dixon |first1=Tim |last2=O'Mahony |first2=John |title=Australia in the Global Economy |date=2019 |publisher=Pearson Australia |isbn=9780655780731 |edition=11}}</ref> (Dixon & O’Mahony, 2019). Data shows that China trading with more advanced economies has increased its access to new technology and information leading to improved competitiveness in global markets. It has been shown that there is a correlation between China’s trade activity with OECD nations and improved domestic productivity<ref>{{cite journal |last1=Chuang |first1=Yih-Chyi |last2=Hsu |first2=Pi-fum |title=FDI, trade, and spillover efficiency: evidence from China’s manufacturing sector |journal=Applied Economics |date=21 August 2006 |volume=36 |issue=10 |page=1103-1115 |doi=https://doi.org/10.1080/0003684042000246812}}</ref>.

Firms who seek to minimise costs in supply chains by using resources from overseas have been shown to invest in local infrastructure. This is classified as foreign direct investment. This dynamic is common as firms from advanced economies expand their production base overseas to take advantage of cheaper labor and capital costs. Studies have shown that foreign direct investment creates productivity gains as local infrastructure of a developing nation is invested into<ref>{{cite journal |last1=Meyer |first1=Klaus |last2=Sinani |first2=Evis |title=When and where does foreign direct investment generate positive spillovers? A meta-analysis |journal=Journal of International Business Studies |date=26 February 2009 |volume=40 |issue=7 |page=1075-1094 |doi=https://doi.org/10.1057/jibs.2008.111 |url=https://link.springer.com/article/10.1057/jibs.2008.111}}</ref>. Examples of how this may occur are a US corporation establishes a production site in Vietnam. Around this production site is the positive spillover of increased investment in local transport infrastructure as well as a food district for the workers.