Working Paper: CEPR ID: DP9807
Authors: Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
Abstract: We use rich 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). We document that backward linkages have a consistently positive effect on productivity of domestic firms while horizontal and forward linkages show no consistent effect. We also examine how the strength of spillovers varies by sector, FDI source, business environment (corruption, red tape, level of development), firm?s distance to the technological frontier, education of workers, and other firm- and country-specific characteristics.
Keywords: Efficiency; FDI; Spillovers; Transition Economies
JEL Codes: F23; M16; O16; P23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Backward linkages from foreign-owned firms to domestic firms (F23) | Productivity of domestic firms (D22) |
| One percentage increase in sales of domestic firms to foreign firms (F23) | Growth rate of efficiency of domestic firms (L25) |
| Sales of domestic firms to foreign firms (F23) | Growth rate of efficiency of large firms (L25) |
| Sales of domestic firms to foreign firms (F23) | Growth rate of efficiency of new firms (M13) |
| Forward linkages from foreign-owned firms to domestic firms (F23) | Efficiency-enhancing effects for domestic firms (D21) |
| Horizontal spillovers from foreign firms (F23) | Productivity of older enterprises (L25) |