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Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela

  • Ann E. Harrison
  • Brian J. Aitken

Governments often promote inward foreign investment to encourage technology 'spillovers' from foreign to domestic firms. Using panel data on Venezuelan plants, the authors find that foreign equity participation is positively correlated with plant productivity (the 'own-plant' effect), but this relationship is only robust for small enterprises. They then test for spillovers from joint ventures to plants with no foreign investment. Foreign investment negatively affects the productivity of domestically owned plants. The net impact of foreign investment, taking into account these two offsetting effects, is quite small. The gains from foreign investment appear to be entirely captured by joint ventures.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.89.3.605
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 3 (June)
Pages: 605-618

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Handle: RePEc:aea:aecrev:v:89:y:1999:i:3:p:605-618
Note: DOI: 10.1257/aer.89.3.605
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  1. Blomstrom, Magnus & Wolff, E.N., 1989. "Multinational Corporations And Productivity Convergence In Mexico," Working Papers 89-28, C.V. Starr Center for Applied Economics, New York University.
  2. Steven Globerman, 1979. "Foreign Direct Investment and `Spillover' Efficiency Benefits in Canadian Manufacturing Industries," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 42-56, February.
  3. Aitken, Brian & Harrison, Ann & DEC, 1994. "Do domestic firms benefit from foreign direct investment? Evidence from panel data," Policy Research Working Paper Series 1248, The World Bank.
  4. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 97-110, September.
  5. Blomstrom, Magnus & Persson, Hakan, 1983. "Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry," World Development, Elsevier, vol. 11(6), pages 493-501, June.
  6. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
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