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Fdi, Export Spillover And Firm Heterogeneity - An Application To The Indian Manufacturing Case

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  • Chiara Franco
  • Subash Sasidharan

Abstract

The role of Foreign Direct Investments (FDI) in the process of economic development is of particular relevance since they bring in some specific technological assets that are not immediately available in the host country. The literature related to the microeconomic impact of FDI has been mainly concentrated in explaining the final effect on productivity, caused by the fact that Multinational Enterprises (MNEs) are not completely able to protect their superior assets from spilling over. However, there is a relatively unexplored effect that has recently been at the center of some studies that is the export spillover effect. Up to now, the literature has found out only mixed results with regard to the possibility that MNEs influence both export decision and export intensity of local firms. In the present paper, we provide some empirical evidence for that specific effect examining a case of an emerging economy, namely India for the period 1994-2006 by using a firm level dataset of more than 3000 firms belonging to manufacturing industries. In particular, we introduce the theoretical argument related to the MNEs heterogeneity which has not been properly investigated especially in empirical studies trying to understand whether, by using different measures characterizing MNEs behaviour, it is possible to distinguish between different impacts that MNEs have on export performance of local firms. We estimate the model through the Heckman selection technique after having built spillover variables that take into account five types of heterogeneity: the degree of involvement in trade networks, the level of embeddedness inside the innovation system of the host country, the asset seeking vs asset exploiting motivations(technological intensity), the type and amount of inputs sourced from abroad rather than from the host country and the percentage of the foreign equity stake. The second step of the analysis we perform is that of testing the relationship between the heterogeneity of MNEs with the heterogeneity of local firms splitting the sample according to the level of R&D intensity, the level of embeddness into the innovation system and the involvement in trade activities. Results confirm the hypothesis of different impacts caused by different MNEs behaviour especially with regard to the export intensity, while a greater impact on export decision is found when heterogeneity of local firms is accounted for.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Development Research Unit Working Paper Series with number 06-09.

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Length: 23 pages
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:mos:druwps:2009-06

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Keywords: Exports; spillover; MNCs;

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  1. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 548, William Davidson Institute at the University of Michigan.
  2. Andrew.B Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2007. "Firms in international trade," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3682, London School of Economics and Political Science, LSE Library.
  3. Andrew B. Bernard & J. Bradford Jensen, 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," NBER Working Papers, National Bureau of Economic Research, Inc 6272, National Bureau of Economic Research, Inc.
  4. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(475), pages F723-39, November.
  5. Richard Kneller & Mauro Pisu, 2007. "Industrial Linkages and Export Spillovers from FDI," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 30(1), pages 105-134, 01.
  6. Aradhna Aggarwal, 2007. "Liberalisation, Multinational Enterprises and Export Performance: Evidence from Indian Manufacturing," Working Papers, eSocialSciences id:993, eSocialSciences.
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