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Fdi, Export Spillover And Firm Heterogeneity - An Application To The Indian Manufacturing Case

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  • Chiara Franco
  • Subash Sasidharan

Abstract

The role of Foreign Direct Investments (FDI) in the process of economic development is of particular relevance since they bring in some specific technological assets that are not immediately available in the host country. The literature related to the microeconomic impact of FDI has been mainly concentrated in explaining the final effect on productivity, caused by the fact that Multinational Enterprises (MNEs) are not completely able to protect their superior assets from spilling over. However, there is a relatively unexplored effect that has recently been at the center of some studies that is the export spillover effect. Up to now, the literature has found out only mixed results with regard to the possibility that MNEs influence both export decision and export intensity of local firms. In the present paper, we provide some empirical evidence for that specific effect examining a case of an emerging economy, namely India for the period 1994-2006 by using a firm level dataset of more than 3000 firms belonging to manufacturing industries. In particular, we introduce the theoretical argument related to the MNEs heterogeneity which has not been properly investigated especially in empirical studies trying to understand whether, by using different measures characterizing MNEs behaviour, it is possible to distinguish between different impacts that MNEs have on export performance of local firms. We estimate the model through the Heckman selection technique after having built spillover variables that take into account five types of heterogeneity: the degree of involvement in trade networks, the level of embeddedness inside the innovation system of the host country, the asset seeking vs asset exploiting motivations(technological intensity), the type and amount of inputs sourced from abroad rather than from the host country and the percentage of the foreign equity stake. The second step of the analysis we perform is that of testing the relationship between the heterogeneity of MNEs with the heterogeneity of local firms splitting the sample according to the level of R&D intensity, the level of embeddness into the innovation system and the involvement in trade activities. Results confirm the hypothesis of different impacts caused by different MNEs behaviour especially with regard to the export intensity, while a greater impact on export decision is found when heterogeneity of local firms is accounted for.

Suggested Citation

  • Chiara Franco & Subash Sasidharan, 2009. "Fdi, Export Spillover And Firm Heterogeneity - An Application To The Indian Manufacturing Case," Development Research Unit Working Paper Series 06-09, Monash University, Department of Economics.
  • Handle: RePEc:mos:druwps:2009-06
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    File URL: http://www.buseco.monash.edu.au/units/dru/papers/working-papers-09/09-06exportspilloverfrancosasidharan.pdf
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    References listed on IDEAS

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    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    2. A. Aggarwal, 2002. "Liberalisation, Multinational Enterprises and Export Performance: Evidence from Indian Manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 38(3), pages 119-137.
    3. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    4. Richard Kneller & Mauro Pisu, 2007. "Industrial Linkages and Export Spillovers from FDI," The World Economy, Wiley Blackwell, vol. 30(1), pages 105-134, January.
    5. 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.
    6. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages 723-739, November.
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    Cited by:

    1. Marta Bisztray, 2016. "The effect of FDI on local suppliers: Evidence from Audi in Hungary," IEHAS Discussion Papers 1622, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    2. Chakraborty, Debashis & Mukherjee, Jaydeep & Lee, Jaewook, 2016. "Do FDI Inflows influence Merchandise Exports? Causality Analysis on India over 1991-2016," MPRA Paper 74851, University Library of Munich, Germany.

    More about this item

    Keywords

    Exports; spillover; MNCs;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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