SMEs’ Absorptive Capacities and Large Firms’ Knowledge Spillovers: Micro Evidence from the Machining Industry in Mexico

The aim of this paper is to analyse the relationship between large firms’ knowledge spillovers and small and medium enterprises’ absorptive capacities. We build ad hoc indicators for these two concepts following a factor analysis methodology, and carry out a structural equations analysis to determine the relationship between them. Based on firm level data from a survey that focuses on SMEs of the machining industry in a Mexican locality, this paper argues that in a low-tech and mature sector, which operates in a loosely articulated local system, two knowledge spillover mechanisms are relevant – the backward linkages and the employees’ mobility. SMEs’ absorptive capacities are strongly influenced by organisational capabilities and innovation and learning activities. We also argue that large firms’ knowledge spillovers are strongly correlated with SMEs’ absorptive capacities within the sector and locality analysed.