FDI, Local Sourcing, and Supportive Linkages with Domestic Suppliers: The Case of Monterrey, Mexico

Summary In this paper, we use unique data from firm level surveys among foreign-owned and domestic producer firms as well as domestic suppliers to obtain novel direct empirical evidence on the level, supportive nature, and impact of input-output linkages in Monterrey, Mexico. Our main empirical findings are threefold. First, FDI firms and Mexican firms do not differ in their level of use of local suppliers of material inputs and production services. Second, we find evidence of a variety of types of support that producer firms transmit to their local suppliers. Importantly, FDI firms are significantly more supportive than Mexican firms. This applies in particular to types of support that are linked closely to improving the production processes of suppliers. We also find that several other producer firm characteristics are associated with the use of local suppliers or the provision of support. Third, we find significant differences between maquiladora firms of different generations regarding the scale and nature of their impact among local suppliers.