Working Paper: CEPR ID: DP7491
Authors: Salvador Barrios; Holger Grg; Eric Strobl
Abstract: 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.
Keywords: backward spillovers; multinationals; productivity spillovers
JEL Codes: F23; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional measures of backward linkages (C67) | domestic productivity (O49) |
| backward linkages from multinationals (F23) | domestic productivity (O49) |
| alternative measures of backward linkages (C67) | domestic productivity (O49) |
| input-output tables from multinationals' home countries (D57) | domestic productivity (O49) |