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Foreign Direct Investment, Competitive Pressure and Spillovers. An Empirical Analysis of Spanish Firm Level Data

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Author Info
Sembenelli, Alessandro
Siotis, Georges

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Abstract

A 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4903.

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Date of creation: Feb 2005
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Handle: RePEc:cpr:ceprdp:4903

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Related research
Keywords: competition efficiency foreign direct investment GMM panel data technology transfer

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Find related papers by JEL classification:
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

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Sea Jin Chang & Jaiho Chung & Dean Xu, 2007. "FDI and Technology Spillovers in China," CEI Working Paper Series 2007-7, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Stefanie A. Haller, 2005. "The Impact of Multinational Entry on Domestic Market Structure and R&D," Economics Working Papers ECO2005/16, European University Institute. [Downloadable!]
  4. Hugo Rojas-Romagosa, 2006. "Productivity Effects of FDI Inflows: A Literature Review," CPB Memoranda 170, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
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