Governments provide a variety of incentives such as lower income taxes, tax holidays, import duty exemptions, and subsidies to attract foreign firms into their country based on the belief that multinational companies (MNCs) bring technology transfer and the productivity growth of domestic firms.

There are several channels through which technology spillovers move from foreign to domestic firms. Technology transfers from MNCs to domestic firms can be observed when domestic workers with work experience at foreign firms move to domestic firms, new MNC products are introduced to the domestic market, and MNCs contract with local firms to purchase intermediate goods. Despite these plausible channels for FDI technology transfer, a number of empirical studies come to mixed results. Motivated by the inconclusive results, researchers have tried to disentangle complicated patterns of FDI spillovers and found that the spillovers differ depending on various firm, industry, and country conditions and the characteristics of MNCs.