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Foreign Direct Investment and Productivity Growth: The Canadian Host-Country Experience

Author

Listed:
  • Surendra, G.
  • Gu, W.
  • Lee, F.C.

Abstract

In this paper, we analyze the impact of technology transfers and spillovers from inward foreign direct investment (FDI) on the production cost and structure of Canadian industries. Specifically, we: (1) estimate the effects of inward FDI on the cost of production; and (2) examine the impact of FDI on the structure of production, i.e., the effects on demand for factors such as capital, labour, intermediate goods and R&D capital. In doing so, we control for domestic and international R&D spillovers. We find that inward FDI lowers production cost and increases productivity in most Canadian industries, and that it alters the structure of production as industries adjust their demand for factor inputs. Our estimates show that inward FDI is biased against the use of capital, labour and intermediate goods and somewhat biased toward the use of domestic R&D. We also find evidence of significant positive international R&D spillovers through trade flows. The results indicate that international R&D spillovers are biased against the use of physical capital, labour and intermediate goods, and biased toward the use of domestic R&D capital. The relationship between domestic R&D and international R&D spillovers suggests that domestic firms must invest in R&D to capture the benefits of R&D spillovers from abroad

Suggested Citation

  • Surendra, G. & Gu, W. & Lee, F.C., 1999. "Foreign Direct Investment and Productivity Growth: The Canadian Host-Country Experience," Gouvernement du Canada - Industrial Organization 30, Gouvernement du Canada - Industry Canada.
  • Handle: RePEc:fth:cagoio:30
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    Citations

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    Cited by:

    1. Danny Leung & Yi Zheng, 2012. "What affects MFP in the long-run? Evidence from Canadian industries," Applied Economics, Taylor & Francis Journals, vol. 44(6), pages 727-738, February.
    2. Patrick GEORGES & Marcel MERETTE & Yazid DISSOU, "undated". "Liberalizing Foreign Direct Investment Restrictions in Canada: A Multi-Country Computable General Equilibrium Analysis," EcoMod2008 23800043, EcoMod.
    3. Sanderson , Lynda, 2004. "Trade and Networks: Mechanisms for Productivity Growth," Occasional Papers 06/5, Ministry of Economic Development, New Zealand.
    4. Yanling Wang, 2010. "Exposure to FDI and New Plant Survival: Evidence in Canada," Carleton Economic Papers 10-05, Carleton University, Department of Economics.

    More about this item

    Keywords

    PRODUCTIVITY ; INNOVATIONS ; INVESTMENTS;

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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