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Domestic Plant Productivity and Incremental Spillovers from Foreign Direct Investment

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  • Altomonte, C.
  • Pennings, H.P.G.

Abstract

We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms’ TFP are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and service, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.

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File URL: http://hdl.handle.net/1765/15143
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Bibliographic Info

Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2009-012-STR.

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Date of creation: 10 Mar 2009
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Handle: RePEc:dgr:eureri:1765015143

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Web page: http://www.erim.eur.nl/

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Keywords: transition economies; multinational firms; productivity;

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  1. Griffith, R & Simpson, H & Redding, S, 2002. "Productivity convergence and foreign ownership at the establishment level," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  2. Van Biesebroeck, Johannes, 2005. "Exporting raises productivity in sub-Saharan African manufacturing firms," Journal of International Economics, Elsevier, vol. 67(2), pages 373-391, December.
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Cited by:
  1. Ichiro Iwasaki & Péter Csizmadia & Mikl�s Illéssy & Csaba Mak� & Mikl�s Szanyi, 2012. "The Nested Variable Model of FDI Spillover Effects: Estimation Using Hungarian Panel Data," International Economic Journal, Korean International Economic Association, vol. 26(4), pages 673-709, October.
  2. Alexander SCHMITT & Johannes VAN BIESEBROECK, 2013. "Proximity strategies in outsourcing relations: the role of geographical, cultural and relational proximity in the European automotive industry," Center for Economic Studies - Discussion papers ces13.02, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  3. Anwar, Sajid & Nguyen, Lan Phi, 2011. "Foreign direct investment and trade: The case of Vietnam," Research in International Business and Finance, Elsevier, vol. 25(1), pages 39-52, January.

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