Knowledge Spillovers. Knowledge spillover from FDIs to domestically-owned firms in less developed countries is often regarded as a major source of technical progress and productivity growth in the host countries. A large number of empirical studies have examined whether such knowledge spillover occurs by estimating the effect of the presence of MNEs in the specific industry on the productivity of domestically-owned enterprises in the same industry. When analyzing the case of Arab regions, Xx Xxxxxx (2015) finds the importance of FDIs as contributors to economic development, especially in terms of their potential knowledge spillover effect. Using endogenous growth theory, and support from empirical studies, Xx Xxxxxx reveals that the technology spillovers arising from FDI inflows have an explicit impact of growth through the transfer of ‘knowledge.’ In turn, this is shown to enhance human capital levels, innovation, as well as other forms of development. Having these knowledge spillovers as diversified sources of growth can be extremely beneficial for non-diversified economies, such as those of the GCC region. According to Gugler and Xxxxxxx (2007), developing countries seek inward FDI to form specialized skills and superior technological capabilities, which, in turn, play a key role in enhancing productivity through efficiency. Xxxxxxxxx and Xxxxx (2002) believe that the transfer of technology is subject to developing qualified human resources at all levels of the hierarchy through different training programs such as training courses, job training, etc. According to UNCTAD, MNEs invest more in developing their human capital relative to domestic companies. Xxxxxxxxx (2000) argues that MNEs are likely to diffuse information if the diffusion is not at the expense of their ownership advantages. Notably, MNEs may share information with local firms about new exporting markets and assist them in accessing these markets. Jordaan (2017) mentions that spillover effects are related to the positive technology gap between the foreign and domestic companies, this gap is influenced by learning capabilities of the host country and tax rates on foreign businesses; whereas, spillovers increases with the increase in the technology gap.; however, knowledge spillover effects are results of business interaction activities between foreign affiliates and domestic companies in the host country, which means that both foreign and local firms play important roles in the diffusion of knowledge, and there...
