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Home Versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers

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  • Priit Vahter

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  • Jaan Masso

    ()

Abstract

The aim of this paper is to study the effects of both inward and outward foreign direct investment (FDI) on productivity. The main novelty is the analysis of the spillover effects of outward FDI that may occur outside the investing firms on the rest of the home country. The effects are addressed both for the manufacturing and services sectors. To our best knowledge there have so far been no studies based on enterprise-level panel data analysing the spillovers of outward FDI in the production function estimation framework. We find that engaging in outward FDI or receiving inward FDI is positively related to the productivity of the parent firm in Estonia or the subsidiary in Estonia. We do not find much evidence of positive spillovers via outward or inward FDI that is robust to the specification of the model or does not depend on the sector being studied. The results on spillover effects vary according to different specifications of the spillover variable, sector or the model, being either statistically insignificant or, in some cases, positive.

Suggested Citation

  • Priit Vahter & Jaan Masso, 2005. "Home Versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers," Bank of Estonia Working Papers 2005-13, Bank of Estonia, revised 10 Dec 2005.
  • Handle: RePEc:eea:boewps:wp2005-13
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    Cited by:

    1. Carlo Altomonte & Enrico Pennings, 2009. "Domestic plant productivity and incremental spillovers from foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(7), pages 1131-1148, September.
    2. Hanousek, Jan & Kocenda, Evzen & Maurel, Mathilde, 2011. "Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis," Economic Systems, Elsevier, vol. 35(3), pages 301-322, September.
    3. Rõigas, Kärt, 2011. "Linkage between productivity and innovation in different service sectors," Discourses in Social Market Economy 2011-02, OrdnungsPolitisches Portal (OPO).
    4. Iwasaki, Ichiro & Tokunaga, Masahiro, 2013. "Spillover versus Ownership: A Meta-Analysis of Transition Literature," RRC Working Paper Series 42, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
    5. Christian Zeller & Andreas Hametner & Koen Smet & Markus Seiwald, 2014. "Internationale Expansion in der pharmazeutischen Industrie Österreichs," FIW Research Reports series V-004, FIW.
    6. Cantner, Uwe & Günther, Jutta & Hassan, Sohaib Shahzad & Jindra, Björn, 2013. "Outward FDI from the Central and Eastern European Transition Economies – A Discrete Choice Analysis of Location Choice within the European Union," MPRA Paper 51817, University Library of Munich, Germany, revised 04 Jun 2013.
    7. Priit Vahter, "undated". "Does FDI spur innovation, productivity and knowledge sourcing by incumbent firms? Evidence from manufacturing industry in Estonia," Discussion Papers 10/09, University of Nottingham, GEP.
    8. Davide Castellani & Maria Mancusi & Grazia Santangelo & Antonello Zanfei, 2015. "Exploring the links between offshoring and innovation," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(1), pages 1-7, March.
    9. Ichiro Iwasaki & Satoshi Mizobata, 2017. "Post-Privatization Ownership and Firm Performance: A Large Meta-Analysis of the Transition Literature," KIER Working Papers 966, Kyoto University, Institute of Economic Research.
    10. repec:rss:jnljfe:v1i2p3 is not listed on IDEAS
    11. repec:eee:chieco:v:44:y:2017:i:c:p:1-15 is not listed on IDEAS
    12. Jitao Tang & Rosanne Altshuler, 2015. "The spillover effects of outward foreign direct investment on home countries: evidence from the United States," Working Papers 1503, Oxford University Centre for Business Taxation.
    13. Iwasaki, Ichiro & Tokunaga, Masahiro, 2016. "Technology transfer and spillovers from FDI in transition economies: A meta-analysis," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 1086-1114.
    14. Ivo Karilaid & Tõnn Talpsepp, 2010. "Can policy improve liquidity during a financial crisis?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 10(2), pages 5-26, December.
    15. Jaan Masso & Tõnu Roolaht & Urmas Varblane, 2010. "Foreign Direct Investment And Innovation In Central And Eastern Europe: Evidence From Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 67, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    16. Priit Vahter, 2006. "Productivity in Estonian enterprises: the role of innovation and competition," Bank of Estonia Working Papers 2006-07, Bank of Estonia, revised 11 Dec 2006.
    17. Dierk Herzer, 2010. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 199, Ibero-America Institute for Economic Research.
    18. Padilla, Ramón & Gomes Nogueira, Caroline, 2015. "Determinants and home-country effects of FDI outflows: Evidence from Latin American countries," Estudios y Perspectivas – Sede Subregional de la CEPAL en México 166, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    19. Wen-Chung Hsu & Xingbo Gao & Jianhua Zhang & Hsin Mei Lin, 2011. "The effects of outward FDI on home-country productivity: Do location of investment and market orientation matter?," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(2), pages 99-116, June.
    20. repec:eee:iburev:v:27:y:2018:i:1:p:289-308 is not listed on IDEAS
    21. Mari Avarmaa & Aaro Hazak & Kadri Männasoo, 2013. "Does leverage affect labour productivity? A comparative study of local and multinational companies of the Baltic countries," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 252-275, April.
    22. Damijan, Jože & Kostevc, Crt & Rojec, Matija, 2014. "Outward FDI and company performance in CEECs," Working Paper Series in Economics and Institutions of Innovation 381, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    23. Cantner, Uwe & Günther, Jutta & Hassan, Sohaib Shahzad & Jindra, Björn, 2013. "Outward FDI from Central and East European Transition Economies – A discrete choice analysis of location within the EU," MPRA Paper 51804, University Library of Munich, Germany, revised 12 Aug 2013.

    More about this item

    Keywords

    foreign direct investment; spillovers; home country effects; productivity;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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