Foreign Direct Investment, Competitive Pressure and Spillovers. An Empirical Analysis of Spanish Firm Level Data
AbstractA short review of the theoretical and empirical evidence indicates that foreign direct investment (FDI) has the potential to increase the intensity of competition as well as to act as a channel for technology transfers. One would expect, all else equal, an increase in average firm performance following a wave of FDI, as multinational corporations (MNCs) enjoy higher levels of efficiency and have the potential to generate positive spillovers. At the same time, the entry of foreign firms has also been associated with an increase in competitive pressure on the domestic market. Using a large firm level dataset covering all sectors of Spanish manufacturing during the period 1983-96, we disentangle these three effects by estimating a dynamic model of firm level performance, which we proxy by profitability. We find that FDI has a positive long-run effect on the profitability of target firms, but this is limited to firms belonging to R&D intensive sectors. In addition, the results indicate that foreign presence dampens margins. However, this effect appears to be more than compensated by positive spillovers in the case of knowledge intensive industries.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4903.
Date of creation: Feb 2005
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Other versions of this item:
- Alessandro Sembenelli & Georges Siotis, 2002. "Foreign Direct Investment, Competitive Pressure and Spillovers. An Empirical Analysis on Spanish Firm Level Data," Development Working Papers 169, Centro Studi Luca d\'Agliano, University of Milano.
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-COM-2005-06-14 (Industrial Competition)
- NEP-ENT-2005-06-14 (Entrepreneurship)
- NEP-FMK-2005-06-14 (Financial Markets)
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