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Do Domestic Firms Really Benefit From Foreign Direct Investment? The Role Of Horizontal And Vertical Spillovers And Absorptive Capacity

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  • SMRUTI RANJAN BEHERA

    (Indian Institute of Technology Ropar, India)

Abstract

This paper examines whether the existence of externalities associated with foreign direct investment (FDI) benefits the domestic firms of Indian manufacturing industries. Empirical findings reveal that local firms benefit from vertical foreign presence, whereas the horizontal foreign presence at the industry level could not substantially raise the value addition of labor across Indian industries. The absorptive capacity of domestic firms is highly relevant to reap the benefit from foreign presence, and could act as a precondition for incorporating the benefit of FDI externalities. Higher concentration and a greater size of the domestic market facilitate to raise the productivity spillovers from foreign presence. Furthermore, the FDI-technology spillovers seem to be higher for R&D-and technology-intensive firms.

Suggested Citation

  • Smruti Ranjan Behera, 2015. "Do Domestic Firms Really Benefit From Foreign Direct Investment? The Role Of Horizontal And Vertical Spillovers And Absorptive Capacity," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(2), pages 57-86, June.
    • Handle: RePEc:jed:journl:v:40:y:2015:i:2:p:57-86
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    Cited by:

    1. Sugam Agarwal & Smruti Ranjan Behera, 2022. "Geographical concentration of knowledge and technology-intensive industries in India: empirical evidence from establishment-level analysis," Indian Economic Review, Springer, vol. 57(2), pages 513-552, December.
    2. H. Ben Hassine & F. Boudier & C. Mathieu, 2017. "The two ways of FDI R&D spillovers: evidence from the French manufacturing industry," Applied Economics, Taylor & Francis Journals, vol. 49(25), pages 2395-2408, May.
    3. Ipsita Roy & Sourabh Bikas Paul, 2022. "Knowledge Spillovers and Productivity Growth: Role of Absorptive Capacity in the Indian Manufacturing Sector," Journal of Industry, Competition and Trade, Springer, vol. 22(2), pages 233-257, June.
    4. Vu Hoang Duong, 2018. "Firm’S Absorptive Capacity: The Case of Vietnamese Manufacturing Firms," Review of Economic Perspectives, Sciendo, vol. 18(3), pages 301-325, September.
    5. Duong, Vu Hoang, 2020. "The threshold of absorptive capacity: The case of Vietnamese manufacturing firms," International Economics, Elsevier, vol. 163(C), pages 44-57.
    6. Kevin Williams, 2017. "Foreign Direct Investment, Economic Growth, and Political Instability," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(2), pages 17-37, June.

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    More about this item

    Keywords

    Foreign Direct Investment; Technology Spillover; Manufacturing; Panel Cointegration; Unit Root Test;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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