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Testing for Marginal Spillovers from Foreign Direct Investment

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Author Info
Carlo Altomonte () (Bocconi University, Milan)
Enrico Pennings () (Erasmus University Rotterdam)

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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 entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 domestic and multinational 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 increases. We can thus recover evidence of changing marginal effects in domestic firms’ TFP, the sign of which depends on a specific threshold in the presence of foreign firms.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-101/4.

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Date of creation: 01 Nov 2005
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Handle: RePEc:dgr:uvatin:20050101

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Related research
Keywords: Multinational firms; productivity; transition economies;

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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