IDEAS home Printed from https://ideas.repec.org/p/eti/dpaper/15009.html
   My bibliography  Save this paper

The Impact of Foreign Firms on Industrial Productivity: A Bayesian-model averaging approach

Author

Listed:
  • TANAKA Kiyoyasu

Abstract

Inward foreign direct investment affects industrial productivity in a host country through a wide range of channels as the presence of foreign firms is heterogeneous across industries, regions, and their characteristics such as entry mode and nationality. Because a wide variety of potential variables pose serious model uncertainty, I adopt a Bayesian-model averaging (BMA) approach to estimate the impact of foreign firms on industry- and prefecture-level productivity in Japan. I find that the foreign presence may contribute to industrial efficiency directly through their above-average productivity and indirectly through positive spillovers in intra-industry and local backward linkages. These positive impacts are likely to occur as a result of the foreign firms being owned by North American and European investors and the foreign firms making joint venture and merger and acquisition (M&A) investments to enter the Japanese market. By contrast, the foreign presence in distant downstream sectors and local upstream sectors may have negative impacts.

Suggested Citation

  • TANAKA Kiyoyasu, 2015. "The Impact of Foreign Firms on Industrial Productivity: A Bayesian-model averaging approach," Discussion papers 15009, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:15009
    as

    Download full text from publisher

    File URL: https://www.rieti.go.jp/jp/publications/dp/15e009.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, World Bank Group, vol. 19(2), pages 171-197.
    2. TANAKA Kiyoyasu, 2014. "Trends and Characteristics of Foreign Direct Investment in Japan (Japanese)," Policy Discussion Papers (Japanese) 14021, Research Institute of Economy, Trade and Industry (RIETI).
    3. Koop, Gary & Leon-Gonzalez, Roberto & Strachan, Rodney, 2012. "Bayesian model averaging in the instrumental variable regression model," Journal of Econometrics, Elsevier, vol. 171(2), pages 237-250.
    4. László Halpern & Balázs Muraközy, 2007. "Does distance matter in spillover?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15, pages 781-805, October.
    5. Winford H. Masanjala & Chris Papageorgiou, 2008. "Rough and lonely road to prosperity: a reexamination of the sources of growth in Africa using Bayesian model averaging," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 671-682.
    6. Todo, Yasuyuki, 2006. "Knowledge spillovers from foreign direct investment in R&D: Evidence from Japanese firm-level data," Journal of Asian Economics, Elsevier, vol. 17(6), pages 996-1013, December.
    7. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc.
    8. Ito, Keiko & Fukao, Kyoji, 2005. "Foreign direct investment and trade in Japan: An empirical analysis based on the Establishment and Enterprise Census for 1996," Journal of the Japanese and International Economies, Elsevier, vol. 19(3), pages 414-455, September.
    9. Salvador Barrios & Holger Görg & Eric Strobl, 2016. "Spillovers through backward linkages from multinationals: Measurement matters!," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 11, pages 213-226, World Scientific Publishing Co. Pte. Ltd..
    10. Eckhardt Bode & Peter Nunnenkamp & Andreas Waldkirch, 2012. "Spatial effects of foreign direct investment in US states," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 16-40, February.
    11. Roger Smeets, 2008. "Collecting the Pieces of the FDI Knowledge Spillovers Puzzle," World Bank Research Observer, World Bank Group, vol. 23(2), pages 107-138, March.
    12. Tsutomu Miyagawa & Shoichi Hisa, 2013. "Measurement of Intangible Investment by Industry and Economic Growth in Japan," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(2), pages 405-432, March.
    13. Iršová, Zuzana & Havránek, Tomáš, 2013. "Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis," World Development, Elsevier, vol. 42(C), pages 1-15.
    14. Lin, Ping & Liu, Zhuomin & Zhang, Yifan, 2009. "Do Chinese domestic firms benefit from FDI inflow?: Evidence of horizontal and vertical spillovers," China Economic Review, Elsevier, vol. 20(4), pages 677-691, December.
    15. Jürgen Bitzer & Holger Görg, 2009. "Foreign Direct Investment, Competition and Industry Performance," The World Economy, Wiley Blackwell, vol. 32(2), pages 221-233, February.
    16. Zhongxiu Zhao & Kevin Honglin Zhang, 2010. "FDI and Industrial Productivity in China: Evidence from Panel Data in 2001–06," Review of Development Economics, Wiley Blackwell, vol. 14(3), pages 656-665, August.
    17. Xu, Xinpeng & Sheng, Yu, 2012. "Are FDI spillovers regional? Firm-level evidence from China," Journal of Asian Economics, Elsevier, vol. 23(3), pages 244-258.
    18. Ragnhild Balsvik & Stefanie A. Haller, 2011. "Foreign firms and host-country productivity: does the mode of entry matter?," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 158-186, January.
    19. Görg, Holger & Molana, Hassan & Montagna, Catia, 2009. "Foreign direct investment, tax competition and social expenditure," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 31-37, January.
    20. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    21. Paprzycki,Ralph & Fukao,Kyoji, 2012. "Foreign Direct Investment in Japan," Cambridge Books, Cambridge University Press, number 9781107411289, December.
    22. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    23. Zhongxiu Zhao & Kevin Honglin Zhang, 2010. "FDI and Industrial Productivity in China: Evidence from Panel Data in 2001-06," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 656-665, August.
    24. Magnus, Jan R. & Powell, Owen & Prüfer, Patricia, 2010. "A comparison of two model averaging techniques with an application to growth empirics," Journal of Econometrics, Elsevier, vol. 154(2), pages 139-153, February.
    25. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
    26. Giuseppe De Luca & Jan R. Magnus, 2011. "Bayesian model averaging and weighted-average least squares: Equivariance, stability, and numerical issues," Stata Journal, StataCorp LP, vol. 11(4), pages 518-544, December.
    27. Rossitza B. Wooster & David S. Diebel, 2010. "Productivity Spillovers from Foreign Direct Investment in Developing Countries: A Meta‐Regression Analysis," Review of Development Economics, Wiley Blackwell, vol. 14(3), pages 640-655, August.
    28. Javorcik, Beata S. & Spatareanu, Mariana, 2011. "Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors," Journal of Development Economics, Elsevier, vol. 96(1), pages 126-138, September.
    29. Javorcik, Beata Smarzynska & Spatareanu, Mariana, 2008. "To share or not to share: Does local participation matter for spillovers from foreign direct investment?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 194-217, February.
    30. Tsutomu Miyagawa & Shoichi Hisa, 2013. "Estimates Of Intangible Investment By Industry And Productivity Growth In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 64(1), pages 42-72, March.
    31. Miao Wang & M. C. Sunny Wong, 2009. "What Drives Economic Growth? The Case of Cross‐Border M&A and Greenfield FDI Activities," Kyklos, Wiley Blackwell, vol. 62(2), pages 316-330, April.
    32. Todo, Yasuyuki & Miyamoto, Koji, 2006. "Knowledge Spillovers from Foreign Direct Investment and the Role of Local R&D Activities: Evidence from Indonesia," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 173-200, October.
    33. Carmen Fillat & Julia Woerz, 2011. "Good or bad? The influence of FDI on productivity growth. An industry-level analysis," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(3), pages 293-328.
    34. Rossitza B. Wooster & David S. Diebel, 2010. "Productivity Spillovers from Foreign Direct Investment in Developing Countries: A Meta-Regression Analysis," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 640-655, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. KEIDA Masayuki & TAKEDA Yosuke, 2017. "Multilevel Analysis of Free Trade Agreements and Foreign Direct Investment in the Asia Pacific Region," Discussion papers 17012, Research Institute of Economy, Trade and Industry (RIETI).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tanaka, Kiyoyasu, 2015. "The impact of foreign firms on industrial productivity : evidence from Japan," IDE Discussion Papers 533, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Orlic, Edvard & Hashi, Iraj & Hisarciklilar, Mehtap, 2018. "Cross sectoral FDI spillovers and their impact on manufacturing productivity," International Business Review, Elsevier, vol. 27(4), pages 777-796.
    3. Jordaan,Jacob Arie & Douw,Willem & Qiang,Zhenwei, 2020. "Multinational Corporation Affiliates, Backward Linkages, and Productivity Spillovers in Developing and Emerging Economies : Evidence and Policy Making," Policy Research Working Paper Series 9364, The World Bank.
    4. Shi He & Yum K. Kwan & Hongzhong Fan, 2019. "In search of FDI horizontal spillovers in China: evidence from meta-analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(3), pages 1505-1527, May.
    5. Jue Wang & Yingqi Wei & Xiaming Liu & Chengang Wang & Hua Lin, 2014. "Simultaneous Impact of the Presence of Foreign MNEs on Indigenous Firms’ Exports and Domestic Sales," Management International Review, Springer, vol. 54(2), pages 195-223, April.
    6. Rajneesh Narula & André Pineli, 2019. "Improving the developmental impact of multinational enterprises: policy and research challenges," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(1), pages 1-24, March.
    7. Kiyoyasu Tanaka & Yoshihiro Hashiguchi, 2015. "Spatial Spillovers from Foreign Direct Investment: Evidence from the Yangtze River Delta in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(2), pages 40-60, March.
    8. Karolien Lenaerts & Bruno Merlevede, 2018. "Indirect productivity effects from foreign direct investment and multinational firm heterogeneity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(2), pages 377-400, May.
    9. Danai Christopoulou & Nikolaos Papageorgiadis & Chengang Wang & Georgios Magkonis, 2021. "IPR Law Protection and Enforcement and the Effect on Horizontal Productivity Spillovers from Inward FDI to Domestic Firms: A Meta-analysis," Management International Review, Springer, vol. 61(2), pages 235-266, April.
    10. Bin Ni & Hayato Kato, 2020. "Do vertical spillovers differ by investors’ productivity? Theory and evidence from Vietnam," Review of Development Economics, Wiley Blackwell, vol. 24(3), pages 1046-1072, August.
    11. Tanaka, Kiyoyasu & Hashiguchi, Yoshihiro, 2012. "Spatial spillovers from FDI agglomeration : evidence from the Yangtze River Delta in China," IDE Discussion Papers 354, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    12. Deborah Winkler, 2018. "Potential and Actual FDI Spillovers in Global Value Chains The Role of Foreign Investor Characteristics, Absorptive Capacity and Transmission Channels," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(10), pages 5-44, December.
    13. K. Lenaerts & B. Merlevede, 2014. "FDI Spillovers and Multinational Firm Heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/879, Ghent University, Faculty of Economics and Business Administration.
    14. Hongzhong Fan & Shi He, 2019. "In search of determinants of FDI backward spillovers: a meta-analysis," Economics and Business Letters, Oviedo University Press, vol. 8(3), pages 122-129.
    15. Yoshimichi Murakami & Keijiro Otsuka, 2020. "Governance, Information Spillovers, and Productivity of Local Firms: Toward an Integrated Approach to Foreign Direct Investment and Global Value Chains," The Developing Economies, Institute of Developing Economies, vol. 58(2), pages 134-174, June.
    16. Bournakis, Ioannis & Papanastassiou, Marina & Papaioannou, Sotiris, 2020. "Multinationals and Domestic TFP: Market Shares, Agglomerations Gains and Foreign Ownership," MPRA Paper 106626, University Library of Munich, Germany.
    17. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    18. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    19. Syeda Tamkeen Fatima, 2016. "Productivity spillovers from foreign direct investment: evidence from Turkish micro-level data," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(3), pages 291-324, June.
    20. Sara L. McGaughey & Pascalis Raimondos & Lisbeth La Cour, 2018. "What is a Foreign Firm? Implications for Productivity Spillovers," CESifo Working Paper Series 7109, CESifo.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:15009. 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: . General contact details of provider: https://edirc.repec.org/data/rietijp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: TANIMOTO, Toko (email available below). General contact details of provider: https://edirc.repec.org/data/rietijp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.