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Sourcing Patterns of FDI Activity and Their Impact on the Domestic Economy

In this paper, we describe sourcing patterns of FDI activity and test empirically whether their impact on the host economy is such as predicted by theoretical models. In the analysis, we focus on inter-industry interactions between a multinational enterprise (MNE) which enters the domestic market and other firms in the economy within the broader context of international trade flows. Our main purpose is to determine whether FDI inflow indeed boosts demand for intermediate goods, and whether the MNE uses domestic suppliers of intermediate goods or whether it purchases its supplies from abroad or from other MNEs entering the downstream sector. Our analysis covers the time period 2001–2007 and concerns both Western and Eastern European countries. Using an unbalanced panel of industries in these countries and the given time period, we come to the conclusion that even though FDI represents a positive shock to demand for intermediate goods, in countries of Eastern Europe this shock is better exploited by MNEs in the upstream sector and foreign importing firms than by domestic producers.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 63 (2013)
Issue (Month): 3 (July)
Pages: 288-302

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Handle: RePEc:fau:fauart:v:63:y:2013:i:3:p:288-302
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  1. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  2. Molly Lesher & Sébastien Miroudot, 2008. "FDI Spillovers and their Interrelationships with Trade," OECD Trade Policy Papers 80, OECD Publishing.
  3. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
  4. Klaus E Meyer & Evis Sinani, 2009. "When and where does foreign direct investment generate positive spillovers? A meta-analysis," Journal of International Business Studies, Palgrave Macmillan, vol. 40(7), pages 1075-1094, September.
  5. Jan Hanousek & Evzen Kocenda & Mathilde Maurel, 2010. "Direct and Indirect Effects of FDI in Emerging European Markets: A Survey and Meta-analysis," William Davidson Institute Working Papers Series wp976, William Davidson Institute at the University of Michigan.
  6. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810, March.
  7. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages F723-39, November.
  8. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series 548, William Davidson Institute at the University of Michigan.
  9. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November.
  10. Klaus E Meyer, 2004. "Perspectives on multinational enterprises in emerging economies," Journal of International Business Studies, Palgrave Macmillan, vol. 35(4), pages 259-276, July.
  11. Frensch, Richard & Gaucaite Wittich, Vitalija, 2009. "Product variety and technical change," Journal of Development Economics, Elsevier, vol. 88(2), pages 242-257, March.
  12. Iršová, Zuzana & Havránek, Tomáš, 2013. "Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis," World Development, Elsevier, vol. 42(C), pages 1-15.
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