Inward foreign investment and the clustering process: the case of the medical technology sector in Ireland

Abstract

This paper investigates how, if at all, inward foreign investment can instigate a clustering process when such investment is initially attracted to a region as a result of targeted public policy rather than the existence of local sectoral capabilities. The case of the medical technology cluster in Galway on the west coast of Ireland is used to examine if FDI (foreign direct investment) can create a clustering effect in FDI-generated agglomerations. The study incorporates the collection of quantitative data from a postal questionnaire survey of the cluster member firms and qualitative data from semi-structured interviews with a sample of both indigenous and foreign-owned firms in the cluster. The empirical evidence shows that the presence of large foreign-owned MNCs (multinational corporations) results in local knowledge transfers and regional reputation effects, which together give rise to a clustering process. The research contests the view that there are generally limited local spillovers in FDI-generated clusters (De Propris and Driffield 2006) and contrary to other perspectives (Phelps 2008), it shows that external economies can be captured locally from FDI in such clusters.