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Foreign Direct Investment, Competition and Industry Performance

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  • Jürgen Bitzer
  • Holger Görg

Abstract

Abstract: This paper investigates the productivity effects of inward and outward foreign direct investment using industry and country level data for 17 OECD countries over the period 1973 to 2001. Controlling for national and international knowledge spillovers we argue that effects of FDI work through direct compositional effects as well as changing competition in the host country. Our results show that there are, on average, productivity benefits from inward FDI, although we can identify a number of countries which, on aggregate, do not appear to benefit in terms of productivity. On the other hand, a country’s stock of outward FDI is, on average, negatively related to productivity. However, again there is substantial heterogeneity in the effect across OECD countries

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1416.

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Length: 20 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:kie:kieliw:1416

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Keywords: Foreign direct investment; inward FDI; outward FDI; productivity; competition;

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References

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  1. Keller, Wolfgang, 1998. "Are international R&D spillovers trade-related?: Analyzing spillovers among randomly matched trade partners," European Economic Review, Elsevier, Elsevier, vol. 42(8), pages 1469-1481, September.
  2. Wolfgang Keller & Stephen R. Yeaple, 2005. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," Kiel Working Papers 1249, Kiel Institute for the World Economy.
  3. Robert E. Lipsey, 2004. "Home- and Host-Country Effects of Foreign Direct Investment," NBER Chapters, National Bureau of Economic Research, Inc, in: Challenges to Globalization: Analyzing the Economics, pages 333-382 National Bureau of Economic Research, Inc.
  4. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, StataCorp LP, vol. 3(1), pages 1-31, March.
  5. Jozef Konings & Alan Patrick Murphy, 2006. "Do Multinational Enterprises Relocate Employment to Low-Wage Regions? Evidence from European Multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 142(2), pages 267-286, July.
  6. 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, American Economic Association, vol. 94(3), pages 605-627, June.
  7. Girma, Sourafel & Greenaway, David & Wakelin, Katharine, 2001. "Who Benefits from Foreign Direct Investment in the UK?," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 48(2), pages 119-33, May.
  8. Görg, Holger & Greenaway, David, 2003. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," IZA Discussion Papers 944, Institute for the Study of Labor (IZA).
  9. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  10. Girma, Sourafel & Görg, Holger & Pisu, Mauro, 2008. "Exporting, linkages and productivity spillovers from foreign direct investment," Open Access Publications from Kiel Institute for the World Economy, Kiel Institute for the World Economy (IfW) 4265, Kiel Institute for the World Economy (IfW).
  11. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, Elsevier, vol. 64(1), pages 89-112, October.
  12. Stephen R. Yeaple & Wolfgang Keller, 2003. "Multinational Enterprises, International Trade, and Productivity Growth," IMF Working Papers 03/248, International Monetary Fund.
  13. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, Elsevier, vol. 65(1), pages 263-293, January.
  14. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 605-618, June.
  15. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  16. Jozef Konings, 2000. "The Effects of Foreign Direct Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies," William Davidson Institute Working Papers Series 344, William Davidson Institute at the University of Michigan.
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Citations

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Cited by:
  1. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2012. "The Impact of Trade Integration with the EU on Porductivity in a Post-Transition Economy. The Case of Polish Manufacturing Sectors," Working Papers, Instytut Rozwoju, Institute for Development 1202, Instytut Rozwoju, Institute for Development.
  2. Dierk Herzer, 2010. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers, Ibero-America Institute for Economic Research 199, Ibero-America Institute for Economic Research.
  3. Julia Spies, 2009. "Network and Border Effects: Where Do Foreign Multinationals Locate in Germany?," IAW Discussion Papers, Institut für Angewandte Wirtschaftsforschung (IAW) 47, Institut für Angewandte Wirtschaftsforschung (IAW).
  4. Neil Dias Karunaratne, 2012. "Total Factor Productivity & Foreign direct investment in OECD countries - A Paneldata Econometric Analysis," Discussion Papers Series 465, School of Economics, University of Queensland, Australia.
  5. Savoiu, Gheorghe & Dinu, Vasile & Ciuca, Suzana, 2013. "Foreign Direct Investment based on Country Risk and other Macroconomic Factors. Econometric Models for Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 39-61, March.
  6. Neil Dias Karunaratne, 2013. "Perspectives on Total Factor Productivity and Foreign Direct Investment in OECD Countries based on Panel Data Econometrics," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, ScientificPapers.org, vol. 3(2), pages 8, April.
  7. Ajay Shah & Ila Patnaik & Dilek Demirbas, 2010. "Graduating to Globalisation: A Study of Southern Multinationals," Working Papers id:2422, eSocialSciences.
  8. Elisa Giuliani & Chiara Macchi, 2013. "Multinational Corporations’ Economic And Human Rights Impacts On Developing Countries: A Review And Research Agenda," Discussion Papers, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy 2013/158, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  9. MUKUNOKI Hiroshi, 2013. "Market Access and Technology Adoption in the Presence of FDI," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13040, Research Institute of Economy, Trade and Industry (RIETI).
  10. Gould, David M. & Tan, Congyan & Emamgholi, Amir S. Sadeghi, 2013. "Attracting foreign direct investment : what can South Asia's lack of success teach other developing countries ?," Policy Research Working Paper Series 6696, The World Bank.
  11. World Bank, 2013. "Trends and Determinants of Foreign Direct Investment in South Asia," World Bank Other Operational Studies 16522, The World Bank.
  12. Rodolphe Desbordes & Vincenzo Verardi, 2011. "The Positive Causal Impact of Foreign Direct Investment on Productivity: A Not So Typical Relationship," Working Papers, University of Strathclyde Business School, Department of Economics 1106, University of Strathclyde Business School, Department of Economics.
  13. Fabienne Fortanier & Selwyn Moons, 2011. "Foreign Investors in The Netherlands: Heterogeneous Employment and Productivity Effects," De Economist, Springer, Springer, vol. 159(4), pages 511-531, December.
  14. Franco, Chiara, 2013. "Exports and FDI motivations: Empirical evidence from U.S. foreign subsidiaries," International Business Review, Elsevier, Elsevier, vol. 22(1), pages 47-62.

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