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Foreign Direct Investment and Knowledge Diffusion in Poor Locations

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  • Girum Abebe

    (EDRI, Ethiopia)

  • Margaret McMillan

    (Tufts)

  • Michel Serafinelli

    (University of Essex)

Abstract

We use a plant level survey to identify interactions between domestic plants and foreign direct investment (FDI) in Ethiopia’s manufacturing sector. Almost one third of Ethiopian plants report being linked to FDI through labor sharing, forward and backward linkages and competition in input and output markets. Domestic plant managers report that through these linkages with FDI, they learn about production processes, managerial and organizational practices and exporting. We quantify the spillovers from FDI at the local level by comparing changes in total factor productivity (TFP) among domestic plants in districts where a large greenfield foreign plant produced and districts where FDI in the same industry and around the same time was licensed but not yet operational. Over the four years starting with the year of the FDI opening, the TFP of domestic plants is 11 percent higher in treated districts, employment in these domestic plants increases and new domestic plants open.

Suggested Citation

  • Girum Abebe & Margaret McMillan & Michel Serafinelli, 2019. "Foreign Direct Investment and Knowledge Diffusion in Poor Locations," CReAM Discussion Paper Series 1913, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  • Handle: RePEc:crm:wpaper:1913
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    4. Girum Abebe & Tigabu Degu & Gebrehiwot Ageba, 2018. "What drives productivity change in the manufacturing sector? Evidence from the metalworking industry in Ethiopia," Working Papers 020, Ethiopian Development Research Institute.
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    7. Song, Young Chul & Son, Sung Hyun, 2020. "Identifying the impact of geographical proximity on spillover effect of FDI: The evidence from Indian local firms’ performance gains," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Foreign Direct Investment; productivity; localized knowledge spillovers; plant-to-plant labor mobility.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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