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Supply Chain Fragmentation and Spillovers from Foreign Direct Investment




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. Laura Alfaro & Andrew Charlton, 2007. "Intra-Industry Foreign Direct Investment," NBER Working Papers 13447, National Bureau of Economic Research, Inc.
  2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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  4. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  5. 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.
  6. Hanousek, Jan & Kocenda, Evzen & Maurel, Mathilde, 2011. "Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis," Economic Systems, Elsevier, vol. 35(3), pages 301-322, September.
  7. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  8. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
  9. K. Schoors & B. Van Der Tol, 2002. "Foreign direct investment spillovers within and between sectors: Evidence from Hungarian data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/157, Ghent University, Faculty of Economics and Business Administration.
  10. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September.
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  13. 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.
  14. B. Merlevede & K. Schoors & M. Spatareanu, 2011. "FDI Spillovers and the Time since Foreign Entry," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/713, Ghent University, Faculty of Economics and Business Administration.
  15. Nuno Crespo & Maria Paula Fontoura, 2005. "Determinant Factors of FDI Spillovers – What Do We Really Know?," Working Papers Department of Economics 2005/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  16. Amil Petrin & Brian P. Poi & James Levinsohn, 2004. "Production function estimation in Stata using inputs to control for unobservables," Stata Journal, StataCorp LP, vol. 4(2), pages 113-123, June.
  17. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
  18. Lall, Sanjaya, 1980. "Vertical Inter-Firm Linkages in LDCs: An Empirical Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 42(3), pages 203-26, August.
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