The Role of FDI in Eastern Europe and New Independent States: New Channels for the Spillover Effect
Policymakers around the world introduce special policies aimed at attracting foreign direct investments (FDI). They motivate their decision by the spillover effect, which FDI have on domestic companies. Empirical literature so far has failed to find any robust evidence of this effect. In this paper, we make an attempt to explain this finding. Using data from Poland, Romania, Russia, and Ukraine, we demonstrate that not all FDI have positive spillover effects on domestic firms. Spillovers are positive only in the case of export-oriented FDI and, more generally, are driven by the more productive foreign companies. Moreover, effects of FDI on domestic firms are not limited to knowledge spillovers: exposure to foreign technologies alters the form of their production functions. Specifically, foreign entry is associated with higher capital intensity and lower labor intensity of domestic firms in relatively more developed countries, such as Poland, while the opposite is the case in the less developed countries, such as Russia. These results are subject to threshold effects: benefits are more likely to materialize once a relatively large stock of foreign capital is accumulated. Absorptive capacity of domestic firms plays a crucial role in reaping the benefits of FDI. Both, knowledge spillovers and production function changes, occur predominantly in the more educated and the less corrupt regions.
|Date of creation:||Dec 2005|
|Contact details of provider:|| Postal: 117418 Russia, Moscow, Nakhimovsky pr., 47, office 720|
Phone: +7 (495) 105 50 02
Fax: +7 (495) 105 50 03
Web page: http://www.cefir.ru
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:cfr:cefirw:w0060. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julia Babich)
If references are entirely missing, you can add them using this form.