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The Impact of FDI on the Host Economy

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  • Pavla Nikolovova

Abstract

The foreign direct investment (FDI) and its impact on performance of domestic firms has been studied in many empirical papers, which, however, present rather ambiguous results. I argue that this is due to some limitations of prevalently used methodology, which does not separate the FDI spillover effects from the changes in competitive environment faced by domestic firms. I propose a novel estimation strategy that allows me to disentangle FDI spillovers from the effects of competition changing in response to the entry of a foreign firm. I consider this issue on the industry level and I compare the effects of FDI to the impact of international trade on the domestic economy. My analysis covers the time period 2001 - 2007 and concerns both Western and Eastern European countries. My identification strategy leads me to confirm the presence of positive spillovers stemming from FDI.

Suggested Citation

  • Pavla Nikolovova, 2012. "The Impact of FDI on the Host Economy," CERGE-EI Working Papers wp471, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp471
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    References listed on IDEAS

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    5. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," CEPR Discussion Papers 6546, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    FDI; MNE; horizontal spillovers; international trade;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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