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Distance to the Efficiency Frontier and FDI Spillovers

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Author Info

  • Peter, Klara Sabirianova

    ()
    (University of North Carolina, Chapel Hill)

  • Svejnar, Jan

    ()
    (Columbia University)

  • Terrell, Katherine

    (University of Michigan)

Abstract

We establish that domestically owned firms in two alternative models of emerging market economies, the Czech Republic and Russia, have not been converging to the technological frontier set by foreign owned firms. In both countries, the distance of domestic firms to the frontier grew (in all parts of the distribution) from 1992-1994 to 1995-1997 and did not change from 1995-1997 to 1998-2000. However, the distance to the frontier is orders of magnitude greater in Russia than in the Czech Republic throughout 1992-2000. We also find in both countries that domestic firms in industries with a greater share of foreign firms are falling behind more than domestic firms in industries with a smaller foreign presence. However, in the Czech Republic this “negative spillover” effect is diminished over time, whereas in Russia it continues to cause domestic firms to fall further behind. On the other hand, we find in both countries that foreign firms experience positive spillovers from other foreign firms operating in the same product market. This evidence on the dynamics of efficiency is consistent with the view that economies (firms) need to be more technologically advanced and open to competition in order to be able to gain from foreign presence.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1332.

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Length: 19 pages
Date of creation: Oct 2004
Date of revision:
Publication status: published in: Journal of the European Economic Association, 2005, 3 (2-3), 291–302
Handle: RePEc:iza:izadps:dp1332

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Keywords: knowledge spillovers; productivity; foreign direct investment; convergence; frontier; Czech Republic; Russia;

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References

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  1. Rachel Griffith & Stephen Redding & Helen Simpson, 2003. "Productivity convergence and foreign ownership at the establishment level," LSE Research Online Documents on Economics 3666, London School of Economics and Political Science, LSE Library.
  2. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," Working Papers 452, Queen Mary, University of London, School of Economics and Finance.
  3. Jozef Konings, 1999. "The Effect of Direct Foreign Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies," LICOS Discussion Papers 8699, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  4. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February.
  5. Peter, Klara Sabirianova & Svejnar, Jan & Terrell, Katherine, 2005. "Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?," IZA Discussion Papers 1457, Institute for the Study of Labor (IZA).
  6. Joze P. Damijan & Mark Knell & Boris Majcen & Matija Rojec, 2003. "Technology Transfer through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?," William Davidson Institute Working Papers Series 549, William Davidson Institute at the University of Michigan.
  7. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05.
  8. Djankov, Simeon & Hoekman, Bernard, 1998. "Avenues of Technology Transfer: Foreign Investment and Productivity Change in the Czech Republic," CEPR Discussion Papers 1883, C.E.P.R. Discussion Papers.
  9. Aitken, Brian & Harrison, Ann & DEC, 1994. "Do domestic firms benefit from foreign direct investment? Evidence from panel data," Policy Research Working Paper Series 1248, The World Bank.
  10. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
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Cited by:
  1. Matthias Arnold, Jens & Javorcik, Beata S., 2009. "Gifted kids or pushy parents? Foreign direct investment and plant productivity in Indonesia," Journal of International Economics, Elsevier, vol. 79(1), pages 42-53, September.
  2. Sabirianova, Klara & Svejnar, Jan & Terrell, Katherine, 2005. "Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?," CEPR Discussion Papers 4868, C.E.P.R. Discussion Papers.
  3. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute for the Study of Labor (IZA).
  4. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2008. "Globalization and Innovation in Emerging Markets," Working Papers 583, Research Seminar in International Economics, University of Michigan.
  5. Jan Hagemejer & Joanna Tyrowicz, 2010. "Not all that glitters. The direct effects of privatization through foreign investment," Working Papers 2010-12, Faculty of Economic Sciences, University of Warsaw.

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