When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies

By Y. Gorodnichenko, Jan Svejnar, Katherine Terrell. Social Science Research Network, 2007

146 citations recorded by the source corpus.

We use firm-level data and national input-output tables from 17 countries over the 2002-2005 period to test new and existing hypotheses about the impact of foreign direct investment (FDI) on the efficiency of domestic firms in the host country (i.e., spillovers). Providing evidence from a larger sample of countries and greater variety of firms than existing studies, with separate estimates by firm size, age, and sector, we show: a) backward spillovers (stemming from supplying a foreign firm in the host country or exporting to a foreign firm) are consistently positive; b) horizontal spillovers are mostly insignificant but positive for older firms and firms in the service sector; d) forward spillovers (from purchasing from foreign firms or importing) are also positive only for old and service sector firms. We find no support for the hypothesis that spillovers are greater for FDI with more advanced technology. While efficiency of domestic firms’ is affected by the business environment, the strength of FDI spillovers is not, either when measured by the degree of corruption, bureaucratic red tape or by differences across regions that vary in terms of development. Testing whether spillovers vary with the firm’s “absorptive capacity” we find: i) distance from the efficiency frontier tends to dampen horizontal spillovers in manufacturing and backward spillovers among old firms; ii) whereas firms with a larger share of university educated workforce are more productive, they do not enjoy greater FDI spillovers than firms with less educated workers. FDI spillovers hence vary by sectors and types of firms.

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Citations in the corpus

Internationalization and Economic Performance of Enterprises: Evidence from Firm-Level Data (2011, unknown): “…the somewhat mixed evidence, more recent contributions tried to show how the size of spillovers depends on such factors as age, size and absorptive capacity of domestic firms, ownership structure of foreign affiliates or competitive pressure (see e.g. Gorodnichenko et al., 2007 or Kolasa, 2008).”
Impact of Firm Heterogeneity on Direct and Spillover Effects of FDI: Micro Evidence from Ten Transition Countries (2013, unknown): “However, as foreign affiliates are mainly engaged in end-user consumer goods, these forward linkages have been found in empirical studies to be rather low or insignificant (Smarzynska-Javorcik (2004), Gorodnichenko et al (2007), Halpern and Murakozy (2007)).”
Determinants of Horizontal Spillovers from FDI: Evidence from a Large Meta-Analysis (2013, background): “…al. (2009) Wang & Zhao (2008) Girma et al. (2008) Managi & Bwalya (2010) Yudaeva et al. (2003) Girma & Wakelin (2007) Merlevede & Schoors (2005) Zajc Kejzar & Kumar (2006) Gorodnichenko et al. (2007) Notes: Both published and unpublished studies are included if they control for vertical spillovers.”
Economic reforms and industrial policy in a panel of Chinese cities (2016, background): “A channel of productivity spillovers is foreign direct investments (see Gorodnichenko et al. 2014), an explicit target of SEZ. Online Appendix Table A9 shows that the onset of SEZ increases the FDI ows to the cities hosting SEZ, consistent with the results of Wang (2013). Moreover, neighboring citi”
FDI and productivity convergence in Central and Eastern Europe: an industry-level investigation (2010, unknown): “More recent contributions to the spillover literature focusing on Central and Eastern Europe include Gersl et al. (2007), Gorodnichenko et al. (2007) and Kolasa (2008).”
Spillovers Through Backward Linkages from Multinationals: Measurement Matters! (2011, background): “Additionally, a number of anecdotes and case studies also suggested that many multinationals play an important role in actively assisting their suppliers in host countries to improve their quality and efficiency (e.g., Moran, 2001).”