IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23643.html
   My bibliography  Save this paper

Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects

Author

Listed:
  • Christian Fons-Rosen
  • Sebnem Kalemli-Ozcan
  • Bent E. Sorensen
  • Carolina Villegas-Sanchez
  • Vadym Volosovych

Abstract

We study the impact of foreign direct investment (FDI) on total factor productivity (TFP) of domestic firms using a new, representative firm-level data set spanning six countries. A novel finding is that firm-level spillovers from foreign firms to domestic companies can be significantly positive, non-existent, or even negative, depending on which sectors receive FDI. When foreign firms produce in the same narrow sector as domestic firms, the latter are negatively affected by increasing competition and positively affected by knowledge spillovers. We find that the positive spillovers dominate if foreign firms enter sectors where firms are “technologically close,” controlling for the endogeneity of their entry decision into such sectors. Positive technology spillovers also affect firms in other sectors, if those sectors are technologically close to the sectors receiving FDI. Increasing FDI in sectors that are technologically close to other sectors boosts TFP of domestic firms by twice as much as increasing FDI by the same amount across all sectors.

Suggested Citation

  • Christian Fons-Rosen & Sebnem Kalemli-Ozcan & Bent E. Sorensen & Carolina Villegas-Sanchez & Vadym Volosovych, 2017. "Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects," NBER Working Papers 23643, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23643 Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23643.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    2. Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1915-1967.
    3. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    4. Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 27(2), pages 202-228.
    5. Ann E. Harrison & Leslie A. Martin & Shanthi Nataraj, 2013. "Learning versus Stealing: How Important Are Market-Share Reallocations to India's Productivity Growth?," World Bank Economic Review, World Bank Group, pages 202-228.
    6. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    7. Amil Petrin & Jerome Reiter & Kirk White, 2011. "The Impact of Plant-level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 3-26, January.
    8. Ronald Findlay, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, Oxford University Press, vol. 92(1), pages 1-16.
    9. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    10. Alvaro Garcia Marin & Nico Voigtländer, 2013. "Exporting and Plant-Level Efficiency Gains: It's in the Measure," NBER Working Papers 19033, National Bureau of Economic Research, Inc.
    11. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
    12. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    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:nbr:nberwo:23643. 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: http://edirc.repec.org/data/nberrus.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 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.

    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.