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Does Fdi Spur Innovation, Productivity And Knowledge Sourcing By Incumbent Firms? Evidence From Manufacturing Industry In Estonia

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  • Priit Vahter

Abstract

Does FDI affect innovation, productivity growth, and knowledge sourcing activities of domestic firms? This study employs detailed firm-level panel-data from Estonia’s manufacturing sector to investigate different channels through which FDI can affect domestic firms. Instrumental variables approach is used to identify the effects. There is no evidence of an effect of FDI entry on local incumbents’ TFP and labour productivity growth in the short term.. However, there are positive spillovers on process innovation. These effects do not depend on the local firms’ distance to the productivity frontier. The results show significant positive correlation between the entry of FDI in a sector and the more direct measures of spillovers in subsequent periods. This is consistent with the view that FDI inflow to a sector intensifies knowledge flows to domestic firms.

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Paper provided by Faculty of Economics and Business Administration, University of Tartu (Estonia) in its series University of Tartu - Faculty of Economics and Business Administration Working Paper Series with number 69.

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Length: 55 pages
Date of creation: 2010
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Handle: RePEc:mtk:febawb:69

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Keywords: foreign direct investment; productivity; innovation; learning;

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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, 2011. "Learning By Exporting: Evidence Based on Data of Knowledge Flows from Innovation Surveys in Estonia," William Davidson Institute Working Papers Series wp1011, William Davidson Institute at the University of Michigan.

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