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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 Department of Economics, Rutgers University, Newark in its series Working Papers Rutgers University, Newark with number 2009-004.

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Length: 27
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:run:wpaper:2009-004

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Keywords: foreign direct investment; technological spillovers; suppliers;

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Cited by:
  1. Torfinn Harding & Beata S. Javorcik, 2013. "Investment Promotion and FDI Inflows: Quality Matters," CESifo Economic Studies, CESifo, vol. 59(2), pages 337-359, June.
  2. 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.
  3. Torfinn Harding, Torfinn; Javorcik, Beata S., 2010. "Roll out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows," CAGE Online Working Paper Series 18, Competitive Advantage in the Global Economy (CAGE).
  4. Sarah Parlane & Ying-Yi Tsai, 2013. "Optimal Contract Orders and Relationship-Specific Investments in Vertical Organizations," Working Papers 201316, School Of Economics, University College Dublin.
  5. Javorcik, Beata S. & Li, Yue, 2008. "Do the biggest aisles serve a brighter future ? global retail chains and their implications for Romania," Policy Research Working Paper Series 4650, The World Bank.
  6. Winkler, Deborah, 2013. "Potential and actual FDI spillovers in global value chains : the role of foreign investor characteristics, absorptive capacity and transmission channels," Policy Research Working Paper Series 6424, The World Bank.
  7. Holger Görg & Adnan Seric, 2013. "With a little help from my friends: Supplying to multinationals, buying from multinationals, and domestic firm performance," Kiel Working Papers 1867, Kiel Institute for the World Economy.
  8. Blyde, Juan & Santamaria, Julieth, 2013. "Sharpen your skills: the impact of training employees on backward linkages," MPRA Paper 53367, University Library of Munich, Germany.
  9. Kamran Bilir & Davin Chor & Kalina Manova, 2014. "Host-Country Financial Development and Multinational Activity," NBER Working Papers 20046, National Bureau of Economic Research, Inc.
  10. Lucia Pérez-Villar & Adnan Seric, 2014. "Multinationals in Sub-Saharan Africa: Domestic Linkages and Institutional Distance," Kiel Working Papers 1893, Kiel Institute for the World Economy.
  11. Colin Wren & Jonathan Jones, 2012. "On the Relative Importance of Intermediate and Non-Intermediate Goods for FDI Location: A New Approach," ERSA conference papers ersa12p165, European Regional Science Association.
  12. Krammer, Sorin, 2010. "Do good institutions enhance the effect of technological spillovers on productivity? Comparative evidence from developed and transition economies," MPRA Paper 53985, University Library of Munich, Germany, revised 07 Feb 2014.
  13. Badi H. Baltagi & Peter Egger & Michaela Kesina, 2014. "Sources of Productivity Spillovers: Panel Data Evidence from China," CESifo Working Paper Series 4812, CESifo Group Munich.
  14. Godart, Olivier N. & Görg, Holger, 2013. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 393-404.
  15. 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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