Managerial discretion and the choice of technology by multinational firms in Brazil

This may be the result of limited technological possibilities. We attempt to test an alternative hypothesis for Brazil: that the adjustment is not larger because a permissive economic environment allows multinationals to achieve their profit and other goals without extensive technological search. This is formalized as a satisficing/managerial discretion model of technological choice. Evidence on the limited technological search is presented from 35 firm interviews in Brazil and from an analysis of the country source of machinery imports by various nationalities of firms in Brazil. The model yields the following hypotheses: (1) Foreign firms producing at the same scale should use more capital and be more efficient in combining resources than Brazilian firms in the same four digit industry. Furthermore, U.S. firms, at the same scale, should be more efficient and use more capital than West European firms in the same five digit industry. Analyses of variance and sign tests; using establishment data from Brazil"s 1969 Industrial Survey yield considerable, if not overwhelming, support for the satisficing/managerial discretion model. The main policy implication is that if LDC"s want foreign firms to use more labor-intensive methods, they had better reduce the premissiveness of the environment by, for example, allowing freer import competition.