The Effects of Direct Foreign Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies
AbstractThis paper uses firm level panel data to investigate empirically the effects of direct foreign investment (DFI) on the productivity performance of domestic firms in three emerging economies of Central and Eastern Europe, Bulgaria, Romania and Poland. To this end a unique firm level panel data set is used with detailed information on foreign ownership at the firm level. Two main questions are addressed in the present paper: (1) Do foreign firms perform better than their domestic counterparts? (2) Do foreign firms generate spillovers to domestic firms? The estimation technique in this paper takes potential endogeneity of ownership, spillovers and other factors into account by estimating a fixed effects model using instrumental variables in the general methods of moment technique for panel data. Only in Poland, I find that foreign firms perform better than firms without foreign participation. Moreover, for all three countries studied here, I find no evidence of positive spillovers to domestic firms on average. In contrast, on average there are negative spillovers to domestic firms in Bulgaria and Romania, while there are no spillovers to domestic firms in Poland. This suggests a negative competition effect that dominates a positive technology effect.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2586.
Date of creation: Oct 2000
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Other versions of this item:
- Jozef Konings, 1999. "The Effect of Direct Foreign Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies," LICOS Discussion Papers 8699, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
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