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Does it matter where you come from? vertical spillovers from foreign direct investment and the nationality of investors

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Author Info

  • Javorcik, Beata S.
  • Saggi, Kamal
  • Spatareanu, Mariana

Abstract

The authors use a firm-level panel data set from Romania to examine whether the nationality of foreign investors affects the degree of vertical spillovers from foreign direct investment. Investors'country of origin may matter for spillovers to domestic producers in upstream sectors (supplying intermediate inputs) in two ways. First, the share of intermediate inputs sourced by multinationals from a host country is likely to increase with the distance between the host and the source economy. Second, the sourcing pattern is likely to be affected by preferential trade agreements that cover some but not other source economies. In this case, the Association Agreement signed between Romania and the European Union (EU) implies that inputs sourced from the EU are subject to a lower tariff than inputs sourced from America or Asia. Moreover, while for European investors intermediate inputs sourced from home country suppliers comply with the rules of origin and thus can be exported to the EU on preferential terms, this would not be the case for home country suppliers of American or Asian multinationals. Therefore, one would expect that American and Asian investors source more from Romania than EU investors and thus present greater potential for vertical spillovers. The empirical analysis produces evidence in support of the authors'hypothesis. They find a positive association between the presence of American and Asian companies in downstream sectors and the productivity of Romanian firms in the supplying industries. Further, the productivity of Romanian firms in the supplying sectors is negatively correlated with operations of European investors in downstream sectors. The differences between the effects associated with investors of different origin are statistically significant.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3449.

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Date of creation: 01 Nov 2004
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Handle: RePEc:wbk:wbrwps:3449

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Keywords: Economic Theory&Research; Environmental Economics&Policies; International Terrorism&Counterterrorism; Labor Policies; Small and Medium Size Enterprises; Environmental Economics&Policies; International Terrorism&Counterterrorism; Economic Theory&Research; Microfinance; Private Participation in Infrastructure;

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Citations

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Cited by:
  1. Stefan Lutz & Oleksandr Talavera & Sang-Min Park, 2008. "Effects of Foreign Presence in a Transition Economy: Regional and Industrywide Investments and Firm-Level Exports in Ukrainian Manufacturing," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(5), pages 82-98, September.
  2. Nuno Crespo & Maria Paula Fontoura, 2005. "Determinant Factors of FDI Spillovers – What Do We Really Know?," Working Papers Department of Economics 2005/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  3. Patricia Prüfer & Gabriele Tondl, 2009. "The FDI-Growth Nexus in Latin America: The Role of Source Countries and Local Conditions," DEGIT Conference Papers c014_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. repec:cge:warwcg:18 is not listed on IDEAS
  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.
  6. Laura Alfaro & Andrew Charlton, 2007. "Growth and the quality of foreign direct investment: is all FDI equal?," LSE Research Online Documents on Economics 19666, London School of Economics and Political Science, LSE Library.
  7. 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).
  8. Hoekman, Bernard & Smarzynska Javorcik, Beata, 2004. "Policies facilitating firm adjustment to globalization," Policy Research Working Paper Series 3441, The World Bank.
  9. Waldkirch, Andreas, 2008. "The Effects of Foreign Direct Investment in Mexico since NAFTA," MPRA Paper 7975, University Library of Munich, Germany.
  10. Ruth Rama, 2008. "Foreign investment innovation: a review of selected policies," The Journal of Technology Transfer, Springer, vol. 33(4), pages 353-363, August.
  11. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute for the Study of Labor (IZA).
  12. Pami Dua & B N Goldar & Smruti Ranjan Behera, 2011. "Foreign Direct Investment and Technology Spillover: An Evaluation Across Different Clusters in India," Working Papers id:4382, eSocialSciences.
  13. Adam Gersl & Ieva Rubene & Tina Zumer, 2007. "Foreign Direct Investment and Productivity Spillovers: Updated Evidence from Central and Eastern Europe," Working Papers 2007/8, Czech National Bank, Research Department.

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