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Foreign Direct Investment, Competitive Pressure and Spillovers. An Empirical Analysis on Spanish Firm Level Data

  • Alessandro Sembenelli

    (University of Torino)

  • Georges Siotis

    (Carlos III University, Madrid)

A short review of the theoretical and empirical evidence indicates that Foreign Direct Investment (FDI) has the potential to increase the intensity of competition as well as to act as a channel for technology transfers. One would expect, all else equal, an increase in average productivity following a wave of FDI, as multinational corporations (MNCs) enjoy higher levels of e¢ciency. At the same time, the entry of foreign firms has also been associated with an increase in competitive pressure on the domestic market. Using a large …rm level data set covering all sectors of Spanish manufacturing during the period 1983-1996, we attempt to disentangle these two effects by estimating a dynamic model of firm level profitability. We find that FDI has a positive long-run e¤ect on the pro…tability of target firms, but this is limited to firms belonging to R&D intensive sectors. In addition, the results indicate that foreign presence dampens margins. However, this e¤ect appears to be more than compensated by positive spillovers in the case of knowledge intensive industries.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 169.

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Date of creation: 01 Nov 2002
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Handle: RePEc:csl:devewp:169
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