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Which Firms Benefit More From Inward Foreign Direct Investment?

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  • Priit Vahter

Abstract

In the study of the effects of foreign direct investment (FDI) on host countries, an interesting question that is highly relevant to government policy concerning FDI is whether the benefits of inward FDI both as "own-firm" effects of FDI in foreign subsidiaries and positive spillover effects for other firms are captured to a larger extent by certain types of enterprises in the host economy? Are there particular characteristics (often called absorptive capacity, e.g. by Cohen, Levinthal 1989) that determine whether a firm can benefit from positive spillovers? In this paper I will try to assess these issues based on enterprise level panel data from Estonia. I find that for the total factor productivity effects of FDI at the subsidiary level, characteristics such as export or domestic market orientation of the affiliate may be important. I do not find that selected indicators such as exporting, R&D activity or intensity of technology in the sector are important for benefiting from horizontal spillovers of FDI in Estonia.

Suggested Citation

  • Priit Vahter, 2005. "Which Firms Benefit More From Inward Foreign Direct Investment?," Bank of Estonia Working Papers 2005-11, Bank of Estonia, revised 10 Oct 2005.
    • Handle: RePEc:eea:boewps:wp2005-11
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    References listed on IDEAS

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    1. Priit Vahter, 2004. "The Effect Of Foreign Direct Investment On Labour Productivity: Evidence From Estonia And Slovenia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 32, Faculty of Economics and Business Administration, University of Tartu (Estonia).
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    9. Blomström, Magnus & Kokko, Ari, 2003. "Human Capital and Inward FDI," CEPR Discussion Papers 3762, C.E.P.R. Discussion Papers.
    10. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    11. Holger Görg & Eric Strobl, 2016. "Multinational Companies And Productivity Spillovers: A Meta-Analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 8, pages 145-161, World Scientific Publishing Co. Pte. Ltd..
    12. Sinani, Evis & Meyer, Klaus E., 2004. "Spillovers of technology transfer from FDI: the case of Estonia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 445-466, September.
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    Cited by:

    1. Hanousek, Jan & Kocenda, Evzen & Maurel, Mathilde, 2011. "Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis," Economic Systems, Elsevier, vol. 35(3), pages 301-322, September.
    2. Priit Vahter & Jaan Masso, 2007. "Home versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(2), pages 165-196.
    3. Czibik, Ágnes & Makó, Ágnes, 2009. "Kiszolgáltatottság és ösztönző erő a kiskereskedelmi láncok és beszállítóik kapcsolatában. Oksági elemzés beszállítói szemszögből [Defencelessness and incentive in the relation between retail chain," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 359-378.
    4. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    5. Muhammad Mustafa Raziq & Martin Perry, 2012. "Foreign direct investment in New Zealand: Does it justify negative assessment?," Regional Science Policy & Practice, Wiley Blackwell, vol. 4(2), pages 155-164, June.
    6. Egert Juuse & Rainer Kattel, 2014. "Financialisation and the Financial and Economic Crises: The Case of Estonia," FESSUD studies fstudy20, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    7. Magdalena A. Sobańska, 2007. "Bezpośrednie inwestycje zagraniczne w Estonii," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 55-77.

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    More about this item

    Keywords

    foreign direct investment; productivity; spillovers; absorptive capacity;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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