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Supply Chain Fragmentation and Spillovers from Foreign Direct Investment

  • K. LENAERTS

    ()

  • B. MERLEVEDE

The literature on FDI spillovers to domestic firm productivity increasingly points to supply chain linkages with multinational firms as the main channel for positive effects. To determine local and multinational firms' relative position in the supply chain, the literature relies on input-output tables. For a panel of Romanian firms we show that the level of industry aggregation in these tables and the commonly applied definitions for vertical spillovers bear an important impact on results. The use of aggregated input-output tables gives rise to significant and large horizontal spillover effects, whereas backward spillovers tend to be small and only marginally significant. Using detailed input-output tables, backward spillovers become highly significant and dominate horizontal spillover effects whose impact is considerably reduced. Assuming that the true nature of the backward spillover is to be found in a supplier-customer relationship, we show that -for the detailed IO-tables- including within-industry intermediate supply (excluded in the commonly used definition) results in a larger impact of the backward spillover, whereas the horizontal spillovers disappear.

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 12/822.

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Length: 24 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:rug:rugwps:12/822
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  1. Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
  2. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  3. Iršová, Zuzana & Havránek, Tomáš, 2013. "Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis," World Development, Elsevier, vol. 42(C), pages 1-15.
  4. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.
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  16. Jan Hanousek & Evzen Kocenda & Mathilde Maurel, 2010. "Direct and Indirect Effects of FDI in Emerging European Markets: A Survey and Meta-analysis," William Davidson Institute Working Papers Series wp976, William Davidson Institute at the University of Michigan.
  17. Carlo Altomonte & Italo Colantone, 2005. "Firm Heterogeneity and Endogenous Regional Disparities," LICOS Discussion Papers 16105, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
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