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Product Sophistication and Spillovers from Foreign Direct Investment

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  • Katharina Eck

    (University of Munich)

  • Stephan Huber

Abstract

Foreign direct investment (FDI) in developing countries is often associated with higher economic growth due to knowledge and technology spillovers to local firms. One way how FDI speeds up growth is that it facilitates the manufacturing of more sophisticated products by local firms. So far, firm-level evidence is missing on how the presence of multinational firms affects the product sophistication of firms in a developing country. This paper aims to fill this gap. We compile an extensive firm-product-level dataset of Indian manufacturing firms which we complement with information on product sophistication and spillovers from FDI. We then explore different channels through which spillovers from multinationals to local Indian firms foster the manufacturing of sophisticated products. We find evidence that spillovers through supplier linkages strongly increase the manufacturing of sophisticated products in India.

Suggested Citation

  • Katharina Eck & Stephan Huber, 2014. "Product Sophistication and Spillovers from Foreign Direct Investment," Working Papers 340, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
  • Handle: RePEc:ost:wpaper:340
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    References listed on IDEAS

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    Cited by:

    1. Piotr Gabrielczak & Tomasz Serwach, 2017. "Does the euro increase the complexity of exported goods? The case of Estonia," Lodz Economics Working Papers 4/2017, University of Lodz, Faculty of Economics and Sociology.
    2. Piotr Gabrielczak & Tomasz Serwach, 2017. "The impact of the euro adoption on the complexity of goods in Slovenian exports," Lodz Economics Working Papers 3/2017, University of Lodz, Faculty of Economics and Sociology.
    3. Karishma Banga, 2019. "Digital technologies and 'value' capture in global value chains: Empirical evidence from Indian manufacturing firms," WIDER Working Paper Series wp-2019-43, World Institute for Development Economic Research (UNU-WIDER).
    4. Bjørn Bo Sørensen, 2020. "Turnin' it up a notch: How spillovers from foreign direct investment boost the complexity of South Africa's exports," WIDER Working Paper Series wp2020-3, World Institute for Development Economic Research (UNU-WIDER).
    5. Bjørn Bo Sørensen, 2020. "Turnin' it up a notch: How spillovers from foreign direct investment boost the complexity of South Africa's exports," WIDER Working Paper Series wp-2020-3, World Institute for Development Economic Research (UNU-WIDER).
    6. Piotr Gabrielczak & Tomasz Serwach, 2017. "The impact of the euro adoption on the complexity of goods in Slovenian exports," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 35(1), pages 45-71.
    7. Klein, Michael A., 2019. "Establishment productivity convergence and the effect of foreign ownership at the frontier," World Development, Elsevier, vol. 122(C), pages 245-260.

    More about this item

    Keywords

    Multinational Firms; Spillovers; Sophistication; Technological Change;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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