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Distance to the Efficiency Frontier and Foreign Direct Investment Spillovers

Author

Listed:
  • Klara Sabirianova

    (University of Michigan,)

  • Jan Svejnar

    (University of Michigan,)

  • Katherine Terrell

    (University of Michigan,)

Abstract

We establish that domestically owned firms in two alternative models of emerging market economies, the Czech Republic and Russia, have not been converging to the technological frontier set by foreign-owned firms. In both countries, the distance of domestic firms to the frontier grew (in all parts of the distribution) from 1992-1994 to 1995-1997 and did not change from 1995-1997 to 1998-2000. However, the distance to the frontier is orders of magnitude greater in Russia than in the Czech Republic throughout 1992-2000. We also find in both countries that domestic firms in industries with a greater share of foreign firms are falling behind more than domestic firms in industries with a smaller foreign presence. However, in the Czech Republic this "negative spillover" effect is diminished over time, whereas in Russia it continues to cause domestic firms to fall further behind. Yet, we find in both countries that foreign firms experience positive spillovers from other foreign firms operating in the same product market. This evidence on the dynamics of efficiency is consistent with the view that economies (firms) need to be more technologically advanced and open to competition in order to be able to gain from foreign presence. (JEL: C33, D20, F23, G32, L20, O33) Copyright (c) 2005 The European Economic Association.

Suggested Citation

  • Klara Sabirianova & Jan Svejnar & Katherine Terrell, 2005. "Distance to the Efficiency Frontier and Foreign Direct Investment Spillovers," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 576-586, 04/05.
  • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:2-3:p:576-586
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D20 - Microeconomics - - Production and Organizations - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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