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When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies

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Author Info
Yuriy Gorodnichenko () (University of California, Berkeley)
Jan Svejnar () (University of Michigan and IZA)
Katherine Terrell () (University of Michigan and IZA)

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Abstract

We use firm-level data and national input-output tables from 17 countries over the 2002-2005 period to test new and existing hypotheses about the impact of foreign direct investment (FDI) on the efficiency of domestic firms in the host country (i.e., spillovers). Providing evidence from a larger sample of countries and greater variety of firms than existing studies, with separate estimates by firm size, age, and sector, we show: a) backward spillovers (stemming from supplying a foreign firm in the host country or exporting to a foreign firm) are consistently positive; b) horizontal spillovers are mostly insignificant but positive for older firms and firms in the service sector; d) forward spillovers (from purchasing from foreign firms or importing) are also positive only for old and service sector firms. We find no support for the hypothesis that spillovers are greater for FDI with more advanced technology. While efficiency of domestic firms’ is affected by the business environment, the strength of FDI spillovers is not, either when measured by the degree of corruption, bureaucratic red tape or by differences across regions that vary in terms of development. Testing whether spillovers vary with the firm’s "absorptive capacity" we find: i) distance from the efficiency frontier tends to dampen horizontal spillovers in manufacturing and backward spillovers among old firms; ii) whereas firms with a larger share of university educated workforce are more productive, they do not enjoy greater FDI spillovers than firms with less educated workers. FDI spillovers hence vary by sectors and types of firms.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3079.

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Length: 56 pages
Date of creation: Sep 2007
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Handle: RePEc:iza:izadps:dp3079

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Related research
Keywords: FDI; spillovers; transition economies; efficiency;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
M16 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - International Business Administration
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elisa Galeotti, 2009. "Do Domestic Firms Benefit from Geographical Proximity with Foreign Investors? Evidence from the Privatization of the Czech Glass Industry," AUCO Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 026-047, March. [Downloadable!]
  2. Nauro F. Campos & Yuko Kinoshita, 2008. "Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America," IMF Working Papers 08/26, International Monetary Fund. [Downloadable!]
    Other versions:
  3. Hagemejer, Jan & Kolasa, Marcin, 2008. "Internationalization and economic performance of enterprises: evidence from firm-level data," MPRA Paper 8720, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2008. "Globalization and Innovation in Emerging Markets," IZA Discussion Papers 3299, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Jože P. Damijan & Jose de Sousa & Olivier Lamotte, 2008. "Does international openness affect productivity of local firms? Evidence from Southeastern Europe," LICOS Discussion Papers 21908, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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