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

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  • Alessandro Sembenelli

    (University of Torino)

  • Georges Siotis

    (Carlos III University, Madrid)

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 productivity following a wave of FDI, as multinational corporations (MNCs) enjoy higher levels of e¢ciency. 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 …rm level data set covering all sectors of Spanish manufacturing during the period 1983-1996, we attempt to disentangle these two effects by estimating a dynamic model of firm level profitability. We find that FDI has a positive long-run e¤ect on the pro…tability 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 e¤ect appears to be more than compensated by positive spillovers in the case of knowledge intensive industries.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 169.

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Date of creation: 01 Nov 2002
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Handle: RePEc:csl:devewp:169

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Keywords: Foreign Direct Investment; Technology Transfer; E¢-;

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Cited by:
  1. Nuno Crespo & Isabel Proença & Maria Paula Fontoura, 2008. "FDI Spillovers at Regional Level: Evidence from Portugal," Working Papers Series 1, ISCTE-IUL, Business Research Unit (BRU-IUL) ercwp0508, ISCTE-IUL, Business Research Unit (BRU-IUL).
  2. Elisa Galeotti, 2009. "Do Domestic Firms Benefit from Geographical Proximity with Foreign Investors? Evidence from the Privatization of the Czech Glass Industry," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 026-047, March.
  3. Holger Görg & Alexander Hijzen & Balazs Muraközy, 2009. "The role of production technology for productivity spillovers from multinationals: Firm-level evidence for Hungary," Kiel Working Papers 1482, Kiel Institute for the World Economy.
  4. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2014. "When Does FDI Have Positive Spillovers? Evidence from 17 Transition Market Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9807, C.E.P.R. Discussion Papers.
  5. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6546, C.E.P.R. Discussion Papers.
  6. Stefanie A. Haller, 2005. "The Impact of Multinational Entry on Domestic Market Structure and R&D," Economics Working Papers, European University Institute ECO2005/16, European University Institute.
  7. Hugo Rojas-Romagosa, 2006. "Productivity Effects of FDI Inflows: A Literature Review," CPB Memorandum, CPB Netherlands Bureau for Economic Policy Analysis 170, CPB Netherlands Bureau for Economic Policy Analysis.
  8. Suzuki, Keishun, 2014. "Southern Innovation and Foreign Direct Investment," MPRA Paper 57054, University Library of Munich, Germany.

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