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Foreign Direct Investment and Knowledge Diffusion in Poor Locations

Author

Listed:
  • 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," RFBerlin Discussion Paper Series 1913, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:1913
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    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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