Spillovers Through Backward Linkages from Multinationals: Measurement Matters!

By Salvador Barrios, Holger Görg, Eric Strobl. Social Science Research Network, 2011

187 citations recorded by the source corpus.

We argue that the measures of backward linkages used in recent papers on spillovers from multinational companies are potentially problematic, as they depend on a number of restrictive assumptions, namely that (i) multinationals use domestically produced inputs in the same proportion as imported inputs, (ii) multinationals have the same input sourcing behaviour as domestic firms, irrespective of their country of origin, and (iii) the demand for locally produced inputs by multinationals is proportional to their share of locally produced output. We discuss why these assumptions are likely to be violated in practice, and provide alternative measures that overcome these drawbacks. Our results, using plant level data for Ireland, show clearly that the choice of backward linkage measure and thus, the assumptions behind them, matters greatly in order to draw possible conclusions regarding the existence of FDI-related spillovers. Using the standard measure employed in the literature we fail to find robust evidence for spillovers through backward linkages. However, when we use alternative measures of backward linkages that relax assumptions (i)-(iii), we find robust evidence for positive FDI backward spillover effects.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/70164235c6cc38540a96b121e377666b5a567b72

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Citations in the corpus

Technology transfers, foreign investment and productivity spillovers (2015, background): “11 Recent work by Barrios et al. (2011) highlights the potential measurement problems in using weights of this kind to measure linkages between downstream foreign affiliates and upstream domestic firms given that the former are likely to have a different pattern of input sourcing.”
FDI Spillovers and Time Since Foreign Entry (2014, unknown): “37 Barrios et al. (2010) presents an interesting discussion of the correct measurement of the backward spillover variable. Although we cannot accommodate all their suggestions due to lack of data, we show the robustness of our results for some of their points. In columns 4 and 5, we follow their sug”
Cross sectoral FDI spillovers and their impact on manufacturing productivity (2018, methodology): “Several reasons have been put forward to explain this ambiguity such as the measurement of FDI spillovers (Ben Hamida and Gugler, 2009; Barbosa and Eiriz, 2009; Barrios et al., 2011; Driffield and Jindra, 2012), methodological issues (Görg and Strobl, 2001), heterogeneity of domestic and foreign fir”
Linkages and spillovers in global production networks: firm-level analysis of the Czech automotive industry (2016, background): “Differences in research design, methodology and data can influence research results (Barrios et al., 2011).”
Estimating vertical spillovers from FDI: Why results vary and what the true effect is (2011, methodology): “Concerning backward spillovers, Barrios et al. (2011) construct an alternative measure of linkages using, for example, inputoutput tables for investors’ home countries to account for different sourcing behavior.”