The Impact of FDI on Firm’s Performance Across Sectors: Evidence from Ukraine

There is evidence in the literature that FDI impact on enterprises’ performance across three large sectors, i.e. primary, secondary and services, differs substantially. We suggest that these disparities may be due to two factors. First, the weak inter- and intra-sectoral links may prevent the FDI spillovers. Second, sector entry restraints can limit the foreign technology diffusion. Using firm-level data covering 80% of population in all three sectors we provide some evidence supporting these hypotheses. In particular, horizontal and vertical spillovers a found to have very different impact on firms by sectors. There is an overall positive horizontal spillover effect which is mostly driven by impact in the manufacturing due to the level of competitiveness of that sector. Vertical spillovers are working in the opposite direction and their influence is pronounced for domestic companies in the service sector and for foreign enterprises in the primary sector. Most importantly, the direct FDI effect is the largest in the most restricted primary sector and falls with time in services where substantial liberalization has been undertaken.