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FDI Spillovers and Multinational Firm Heterogeneity

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  • K. LENAERTS
  • B. MERLEVEDE

    ()

Abstract

Theoretical work implies that more investment promotion will attract less productive foreign firms. We analyze to what extent less productive foreign firms are capable of generating positive spillover effects. We find that only sufficiently productive foreign firms generate positive backward spillover effects. When we combine foreign and domestic firm heterogeneity, more productive multinationals, and especially those that are more than two standard deviations more productive than an individual domestic firm, are found to be the main source of positive backward spillover effects for the latter. More productive domestic firms benefit from larger positive effects. Supplying less productive multinationals results in negative spillover effects. Lower productivity levels of domestic and foreign firms generally lead to a more negative impact. If investment promotion aims at technology transfer to domestic firms, policy makers should be aware that attracting additional foreign investment might result in zero or negative spillover effects.

Suggested Citation

  • K. Lenaerts & B. Merlevede, 2014. "FDI Spillovers and Multinational Firm Heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/879, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:14/879
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    File URL: http://wps-feb.ugent.be/Papers/wp_14_879.pdf
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    References listed on IDEAS

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    Cited by:

    1. Karolien Lenaerts & Bruno Merlevede, 2015. "Firm size and spillover effects from foreign direct investment: the case of Romania," Small Business Economics, Springer, vol. 45(3), pages 595-611, October.

    More about this item

    Keywords

    FDI spillovers; multinationals; firm heterogeneity; technology transfer;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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