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Spillovers Through Backward Linkages from Multinationals: Measurement Matters!

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  • Barrios, Salvador

    () (European Commission)

  • Görg, Holger

    () (Kiel Institute for the World Economy)

  • Strobl, Eric

    () (Ecole Polytechnique, Paris)

Abstract

We argue that the measures of backward linkages used in recent papers on spillovers from multinational companies are potentially problematic, as they depend on a number of restrictive assumptions, namely that (i) multinationals use domestically produced inputs in the same proportion as imported inputs, (ii) multinationals have the same input sourcing behaviour as domestic firms, irrespective of their country of origin, and (iii) the demand for locally produced inputs by multinationals is proportional to their share of locally produced output. We discuss why these assumptions are likely to be violated in practice, and provide alternative measures that overcome these drawbacks. Our results, using plant level data for Ireland, show clearly that the choice of backward linkage measure and thus, the assumptions behind them, matters greatly in order to draw possible conclusions regarding the existence of FDI-related spillovers. Using the standard measure employed in the literature we fail to find robust evidence for spillovers through backward linkages. However, when we use alternative measures of backward linkages that relax assumptions (i)-(iii), we find robust evidence for positive FDI backward spillover effects.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4477.

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Length: 32 pages
Date of creation: Oct 2009
Date of revision:
Publication status: published in: European Economic Review, 2011, 55 (6), 862-875
Handle: RePEc:iza:izadps:dp4477

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Keywords: backward spillovers; productivity spillovers; multinationals;

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References

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Citations

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Cited by:
  1. ITO Keiko, 2011. "Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case of Japanese firms," Discussion papers 11063, Research Institute of Economy, Trade and Industry (RIETI).
  2. Priit Vahter, 2010. "Does Fdi Spur Innovation, Productivity And Knowledge Sourcing By Incumbent Firms? Evidence From Manufacturing Industry In Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 69, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  3. Tomáš Havránek & Zuzana Iršová, 2011. "How to Stir Up FDI Spillovers: Evidence from a Large Meta-Analysis," Working Papers IES 2011/34, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2011.
  4. Olivier N. Godart & Holger Görg, 2013. "Suppliers of Multinationals and the Forced Linkage Effect: Evidence from Firm Level Data," Kiel Working Papers 1822, Kiel Institute for the World Economy.
  5. Tanaka, Kiyoyasu & Hashiguchi, Yoshihiro, 2012. "Spatial spillovers from FDI agglomeration : evidence from the Yangtze River Delta in China," IDE Discussion Papers 354, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  6. Carluccio, Juan & Fally, Thibault, 2010. "Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain," CEPR Discussion Papers 7866, C.E.P.R. Discussion Papers.
  7. Juliette Milgram-Baleix, 2009. "Do Spanish firms learn from firms located nearby?," Economic Working Papers at Centro de Estudios Andaluces E2009/09, Centro de Estudios Andaluces.
  8. JINJI Naoto & ZHANG Xingyuan & HARUNA Shoji, 2011. "Does the Structure of Multinational Enterprises' Activity Affect Technology Spillovers?," Discussion papers 11027, Research Institute of Economy, Trade and Industry (RIETI).

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