Foreign direct investment and firm level productivity - A panel data analysis
AbstractThis paper uses panel data to examine the effect of foreign presence on firm level productivity in the Kenyan manufacturing industry employing "traditional" and "recent" methodologies both based on production function framework. A detailed comparative behaviour between foreign and local indigenous firms showed that foreign firms dominated in virtually all the economic activities including productivity performance. Analysis of productivity determinants following traditional approach indicated a statistically significant role played by foreign presence on firm level total factor productivity thus, supporting spillover occurrence argument. However, results based on recent methodologies showed no effect of foreign presence on firm level total factor productivity hence failing to support spillover occurrence dictum. These results indicate that use of different methodologies even within the same theoretical framework can result in divergent findings. This notwithstanding, the paper further argues that use of productivity based methodologies largely masks the nature, actual processes and mechanisms through which spillovers occur. The paper therefore advocates for a "paradigm shift" in the spillover analysis techniques and recommends a broader approach with particular emphasis on technological innovations which takes into consideration learning, capability building and innovation.
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Bibliographic InfoPaper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 016.
Date of creation: 2007
Date of revision:
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Web page: http://www.merit.unu.edu
International Economic Relations; Foreign Direct Investment; Technology Transfer; Total Factor Productivity; Technological Change; Innovations; Kenya;
Find related papers by JEL classification:
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-23 (All new papers)
- NEP-BEC-2007-06-23 (Business Economics)
- NEP-DEV-2007-06-23 (Development)
- NEP-EFF-2007-06-23 (Efficiency & Productivity)
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