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Tough Love: Do Czech Suppliers Learn from Their Relationships with Multinationals?

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  • Beata S. Javorcik
  • Mariana Spatareanu

Abstract

Many countries strive to attract foreign direct investment (FDI) hoping that knowledge brought by multinationals will spill over to domestic industries and increase their productivity. While the empirical studies have cast doubt on the existence of horizontal spillovers from FDI in developing countries, several recent papers have confirmed the presence of vertical spillovers, which take place through contacts between foreign affiliates and their local suppliers. However, the existing studies rely on industry-level proxies for vertical spillovers rather than information on actual relationships between local companies and multinationals. This study goes one step further by employing a unique dataset from the Czech Republic, which allows us to identify local firms supplying multinationals operating in the country. The data suggest that suppliers are different from other firms. They are larger, have a higher capital-labor ratio, pay higher wages and exhibit a higher productivity level. The evidence is suggestive of both high productivity firms having a higher probability of supplying multinationals as well as suppliers learning from their relationships with multinationals.

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Bibliographic Info

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 24909.

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Date of creation: 2009
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Handle: RePEc:lic:licosd:24909

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Keywords: foreign direct investment; technological spillovers; suppliers;

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Cited by:
  1. Torfinn Harding & Beata S. Javorcik, 2011. "Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows," Economic Journal, Royal Economic Society, vol. 121(557), pages 1445-1476, December.
  2. Torfinn Harding & Beata Javorcik, 2012. "Investment Promotion and FDI Inflows: Quality Matters," Economics Series Working Papers 612, University of Oxford, Department of Economics.
  3. Jonathan Jones & Colin Wren, 2011. "On the Relative Importance of Agglomeration Economies in the Location of FDI Across British Regions," SERC Discussion Papers 0089, Spatial Economics Research Centre, LSE.
  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. Elisa Giuliani, 2010. "Multinational Corporations, Technology Spillovers and Human Rights's Impacts on Developing Countries," LEM Papers Series 2010/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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