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Do domestic firms benefit from geographic proximity with FDI? Evidence from the privatization of the Czech glass industry

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Abstract

This paper analyzes the effects of geographical proximity and agglomeration of FDIs (foreign direct investments) on domestic firms in the privatized glass sector in the Czech Republic. The motivation for this research is based on the scant evidence in Central and Eastern Europe of the effects of geographical proximity and agglomeration on the productivity of domestic firms. This study aims to explain how spillovers are transferred from FDIs to domestic firms. The econometrical analysis, using original panel data from 1990 to 2006, provides evidence that the agglomeration of FDIs has a negative and significant effect on the productivity of domestic firms in the glass sector at a 5% level. The effect of geographical proximity to FDIs is significant at a 10% level but not in all models. The results support the importance of geographic proximity and agglomeration of FDIs and conform with the evidence that shows that FDIs have produced negative spillovers on domestic firms in transition countries.

Suggested Citation

  • Elisa Gaelotti, 2008. "Do domestic firms benefit from geographic proximity with FDI? Evidence from the privatization of the Czech glass industry," Working Papers IES 2008/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2008.
  • Handle: RePEc:fau:wpaper:wp2008_20
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    Keywords

    Foreign direct investments; agglomeration economies; panel data; regional location; Czech Republic; glass industry;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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