Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries

This paper presents a comparative study of the importance of direct technology transfer and spillovers through FDI on a set of 10 transition countries, using a common methodology and appropriate methods to account for selection and simultaneity correction. This paper considers by far the largest firm level dataset (more than 90,000 firms) used by any study on the spillover effects of FDI. The main novelty of the paper is the explicit control for various sources of firm heterogeneity when accounting for different effects of FDI on firm performance. This work shows that the heterogeneity of firms in terms of absorptive capacity, size, productivity and technology levels affect the results. Controlling for these variables leads to some interesting results, which contrast with the previous empirical work in the field. We find that horizontal spillovers have become increasingly important over the last decade, and they may even become more important than vertical spillovers. Positive horizontal spillovers are equally distributed across size classes of firms, while negative horizontal spillovers seem to be more likely to accrue to smaller firms. Moreover, positive horizontal spillovers seem more likely to be present in medium or high productivity firms with higher absorptive capacities, while negative horizontal spillovers are more likely to affect low to medium productivity firms. These findings suggest that both direct effects from foreign ownership as well as the spillovers from foreign firms substantially depend on the absorptive capacity and productivity level of individual firms. In addition, these results show that foreign presence may also affect smaller firms to a larger extent than larger firms, but this impact may be in either direction.     

Does FDI Facilitate Domestic Entry? Evidence from the Czech Republic

This paper analyzes the impact of FDI on domestic firm entry and firm size distributions in the Czech Republic during 1994–2000. We find that larger foreign presence stimulates the entry of domestic firms within the same industry, indicating the existence of positive horizontal spillovers from FDI. We also find evidence of significant vertical entry spillovers—FDI in downstream (upstream) industries initiates entry in upstream (downstream) sectors. Our results also show that entry spillovers through vertical linkages are stronger than horizontal spillovers and that while service industries benefit from both horizontal and vertical spillovers, manufacturing industries do not experience significant positive entry spillovers of any kind. We also find that country of origin of FDI matters—horizontal spillovers are driven by FDI from the EU countries. The right skewness of the firm size distributions in industries without FDI further emphasizes an important role of FDI presence for overall industry dynamics.     

Origin of FDI and Intra‐Industry Domestic Spillovers: The Case of Greek and European FDI in Bulgaria

This paper uses firm‐level data to assess the horizontal impact of foreign firm ownership on domestic productivity in Bulgaria. We identify a theoretical tradeoff between technological distance (of domestic versus foreign firms) and internalization capacity (of spillovers) and examine the extent to which this is reflected in the impact on the domestic economy of different types and origins of FDI. Emphasis is placed upon the effects of Greek FDI, which is known to be of a distinctively “regional” character. We find that Greek FDI produces significantly larger positive spillovers, which appear more suitable for the Bulgarian context of transition and economic restructuring. We also unveil some notable “hysteresis” and “technology bias” effects for FDI spillovers of all origins, as well as some country‐specific ownership‐structure and threshold effects.     

FDI spillovers in new EU member states

Using an unbalanced panel of firm‐level data in Bulgaria, Poland and Romania, we examine the impact of foreign firms on domestic firms’ productivity. In particular, we try to answer the following research questions: (1) Are there any spillover effects of foreign direct investments (FDI), and if so, are they positive or negative? (2) Are spillover effects more likely to occur within or across sectors? (3) Are the existence, the direction and the magnitude of spillovers conditioned by sector and firm‐specific characteristics? Our findings show that FDI spillovers exist both within and across sectors. The former arise when foreign firms operate in labour‐intensive sectors, while the latter occur when foreign firms operate in high‐tech sectors. Moreover, we find that domestic firm size conditions the exploitation of FDI spillovers even after controlling for absorptive capacity. We also detect a great deal of heterogeneity across countries consistent with the technology gap hypothesis.     

Wage,foreign-owned firms,and productivity spillovers via labour turnover: a non-linear analysis based on Chinese firm-level data

Using firm-level panel data from Chinese manufacturing firms over the period 2004–2007, this article investigates the impact of the wage gap between local and foreign-owned firms on foreign direct investment (FDI) spillovers in terms of total factor productivity (TFP). We find a non-linear threshold effect that: a low-level wage gap threshold exists, below which FDI spillovers are significantly negative. This is because FDI spillovers via labour turnover are blocked due to the low wages of local firms, which jeopardizes the flow of skilled workers from foreign firms to local firms. In contrast, when the wage gap reaches a high-level threshold, local firms can get benefits from FDI spillovers. The reason is that high wages of local firms attract skilled employees to leave foreign firms, which yields a large magnitude of worker mobility from foreign firms to local firms. Our article provides evidence that labour turnover as the channel of FDI spillovers only works when the wage gap is beyond some threshold. Also, these thresholds vary across regions and firm ownerships.     

Export Spillovers of FDI on China's Domestic Firms

This paper examines the horizontal and vertical export spillovers of foreign direct investment (FDI) on China's manufacturing domestic firms by using firm‐level census data over the period of 2000–03. Based on a Heckman two‐step procedure combining first differencing and instrumental variable regression techniques, it is found that FDI has had a positive impact on the export value of domestic firms mainly through backward technology spillovers and a positive impact on the export‐to‐sales ratio of domestic firms through horizontal export‐related information spillovers. After decomposing FDI by different market orientation and domestic firms by different ownership, the paper finds that the positive impact on domestic firms' export values is mainly from the nonexporting and the exporting foreign‐invested enterprises while the positive impact on domestic firms' export‐to‐sales ratios is mainly from the high‐exporting foreign‐invested enterprises. Both types of export spillovers are mainly diffused to domestic non‐state‐owned enterprises.     

INTERNATIONALIZATION STRATEGIES IN OLIGOPOLY WITH HETEROGENEOUS FIRMS

This paper examines the foreign direct investment (FDI) versus exports decision of foreign oligopolistic firms under cost heterogeneity. An additional motivation for firms to invest abroad is the technological sourcing via spillovers, which flow from the host more efficient firm to foreign less advantaged firms. For intermediate values of the set‐up costs associated with FDI entry, it is shown that foreign firms choose opposite entry strategies. An equilibrium where the less efficient foreign firm exports whereas the more efficient invests is more likely to happen when foreign firms become more heterogeneous, the larger the trade costs and not too big oligopolistic profitability. Interestingly, the opposite may also be an equilibrium thus finding that the more efficient firm does not choose to invest, a result that emphasizes the relevance of the strategic setting under consideration. The latter result identifies a market failure since welfare in the host market is higher when both firms undertake FDI; a finding that calls attention to how appropriate are host government policies towards internationalization strategies.     

Regional foreign direct investment and technology spillover: evidence across different clusters in India

This paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms at the regional level, using firm-level panel dataset covering 22 manufacturing industries in India from 2000 to 2012. In order to estimate the productivity spillovers from FDI at the regional level, we select 10 industrial clusters across 4 regions in India. In estimating productivity, we control for a possible simultaneity bias by using semi-parametric estimation techniques. We find that local firms benefit from horizontal and vertical FDI, but the benefits from the latter are found to be substantially stronger. The absorptive capacity of domestic firms is highly relevant to harvest the spilled technology from foreign-owned firms. Furthermore, we find that domestic firms belonging to high-technology industries benefit more from FDI at the regional level. We also find that market concentration is a crucial conduit for firm innovation, technological upgradation, and having a direct effect on local firm total factor productivity.     

Spillovers from Foreign Direct Investment in Spanish Manufacturing Firms

This paper examines the effect of participation by foreign capital and the spillovers from a foreign presence on the technical progress of Spanish manufacturing firms. The results show that foreign direct investment (FDI) creates positive spillover effects for local firms, and when the presence of foreign capital and the absorptive capacity of spillovers from FDI are large, more technical progress ensues. Also, local companies in capital‐ and research and development (R&D)‐intensive industries experience larger positive FDI spillovers. For these reasons, government policies should aim to attract FDI, especially in the aforementioned industries.     

The two ways of FDI R&D spillovers: evidence from the French manufacturing industry

Using French firm-level panel data, this study investigates R&D spillovers from inward foreign direct investment (FDI) with respect to both horizontal and vertical linkages (backward and forward). Using a Crepon, Duguet and Mairesse (CDM) model, we estimate an R&D-augmented Cobb–Douglas production function to assess the impact of R&D spillovers on firm performance. The results emphasize that international spillovers (from foreign affiliates to local firms) have a greater effect on firm performance than reverse spillovers (from local firms to foreign affiliates) and are more likely to be backward than forward. Moreover, the effect of backward spillovers depends on a firm’s absorptive capacity and is amplified in the case of outsourcing relationships.     

Foreign direct investment and technology spillovers: Evidence from panel data analysis of manufacturing firms in Zambia

The most pronounced reason for providing fiscal incentives to attract foreign direct investment (FDI) is that FDI is an effective conduit for technology transfer through technology spillovers to domestically owned firms in the host country. This study analyzes the nature and significance of productivity externalities of FDI to local firms, both in terms of intra-industry and inter-industry spillovers, using firm-level data from Zambia. The results show little evidence in support of intra-industry productivity spillovers from FDI on one hand, and significant inter-industry knowledge spillovers occurring through linkages. The net impact of FDI depends on the interaction between intra-industry and inter-industry productivity effects.     

Product sophistication and spillovers from foreign direct investment

Foreign direct investment (FDI) in developing countries is often associated with higher economic growth due to knowledge and technology spillovers to local firms. One way that FDI speeds up growth is by facilitating the manufacturing of more sophisticated products by local firms. So far, there is a lack of firm‐level evidence how the presence of multinational firms affects the product sophistication of firms in a developing country. The aim of this paper is to fill this gap. We compile an extensive firm–product‐level data set of Indian manufacturing firms, which we complement with information on product sophistication and spillovers from FDI. We then explore different channels through which spillovers from multinationals to local Indian firms foster the manufacturing of sophisticated products. We find evidence that spillovers through supplier linkages strongly increase the manufacturing of sophisticated products in India.     

外资溢出对中国私营企业生产率的异质性影响-来自普查数据的证据

本文利用第一次全国经济普查的企业微观数据研究中国私营企业生产率的异质性对吸收外资溢出的影响。我们发现:(1)企业层面外资份额及其控股与否对企业生产率的积极影响随生产率水平递增;(2)私营企业存在着吸收外资水平溢出和后向溢出的生产率"门槛"效应,即吸收能力的差别;(3)下游外资控股企业的溢出促进了上游大部分私营企业的生产率,而非外资控股的合资企业则对上游生产率较低的私营企业有负的净效应。私营企业面临的外资竞争格局正从各方面形成,而私营部门内部生产能力分化也日渐明显。     

Technology transfers,foreign investment and productivity spillovers

This paper explores the relationship between foreign direct investment (FDI) and the productivity of host country domestic firms. We rely on a specially designed survey of over 4000 manufacturing firms in Vietnam, and separate out productivity gains along the supply chain (obtained through direct transfers of knowledge/technology between linked firms) from productivity effects through indirect FDI spillovers. In addition to identifying indirect vertical productivity spillovers from FDI, our results show that there are productivity gains associated with direct linkages between foreign-owned and domestic firms along the supply chain not captured by commonly used measures of spillovers. This includes evidence of productivity gains through forward linkages for domestic firms which receive inputs from foreign-owned firms.     

ARE THERE PRODUCTIVITY SPILLOVERS FROM FOREIGN DIRECT INVESTMENT IN CHINA?

We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a firm‐level data set from a World Bank survey. We find that the evidence of FDI spillovers on the productivity of Chinese domestic firms is mixed, with many positive results largely due to aggregation bias or failure to control for endogeneity of FDI. Attempting over 6000 specifications that take into account forward and backward linkages, we fail to find evidence of systematic positive productivity spillovers from FDI in China.     

FDI Contribution to Technical Efficiency in the Tunisian Manufacturing Sector: Evidence from Micro-panel Data

This paper investigates the contribution of FDI to firms’ technical efficiency based on a two-stage empirical method. Using panel data for 674 firms belonging to the Tunisian manufacturing sector and observed over the period 1997–2001, a bootstrap procedure is applied to correct for serial correlation affecting DEA technical efficiency scores estimated in a first stage. Results obtained from second-stage regressions show that FDI presence at the firm level has a positive effect on its technical efficiency. However, horizontal FDI spillovers are not evidenced while sectoral export activity represents a potential source of technology spillovers for local firms.     

Foreign Direct Investment, Licensing, and Incentives for Innovation

In a two-period duopoly model, this paper considers a foreign firm's choice between licensing and FDI and studies the relative impact of these modes of technology transfer on the incentives for innovation of that firm and its domestic rival. Relative to licensing, FDI limits technology spillovers to the domestic firm but dissipates more rents in the product market. Internalization allows the foreign firm to build on an existing technological advantage. While the local firm develops its best technology if initial licensing is followed by FDI, the foreign firm transfers the most efficient technology under FDI in both periods.     

Foreign direct investment in R&D and domestic entrepreneurship in China’s manufacturing industries

This paper argues that internationalization of innovation and the related spillovers can also affect the likelihood of firm entry and exit into an industry. By making use of firm-level panel data from China over the period 2005 to 2007, this paper examines the impact of foreign direct investment (FDI) in research and development (R&D) and the related linkages on entry and exit likelihoods of domestic firms in (i) transport equipment and (ii) electrical machinery and equipment manufacturing industries. In order to evaluate the region-of-origin effect, this paper also separately examines the impact of FDI in R&D originating from (i) all countries except Hong Kong, Macau and Taiwan and (ii) Hong Kong, Macau and Taiwan. Furthermore, the impact of FDI in R&D on entry and exit of Chinese firms in the two industries is examined by splitting the data into large and small firms within the two industries. The results of the pooled probit regression reveal that FDI in R&D and the related spillovers can have a significant impact on the likelihood of entry and exit of domestic firms in transport equipment and electric machinery and equipment industries. The empirical analysis also suggests that the impact of changes in FDI in R&D and the related spillovers varies across firm size.     

R&D and foreign direct investment with asymmetric spillovers

This paper analyzes how firms’ R&D investment decisions are affected by asymmetries in knowledge transmission, considering different sources of asymmetry such as unequal know-how management capabilities and spillovers localization within an international oligopoly. We show that a better ability to manage knowledge flows incentivizes the firm to invest more in R&D. By introducing geographically bounded spillovers, we also find that one-way foreign direct investment (FDI) stimulates the multinational enterprise to raise its own R&D and that an FDI equilibrium is more likely to occur. Finally, spillovers localization leading to two-way FDI is welfare improving when compared with non-localized spillovers.     

Intra‐industry Knowledge Spillovers from Foreign Direct Investment in Research and Development: Evidence from China's “Silicon Valley”

This study examines a specific channel of technology diffusion from multinational enterprises to domestic firms in less developed regions: research and development (R&D) activities of multinational enterprises in the host country. Using firm‐level panel data from a Chinese science park, known as China's “Silicon Valley,” we find that the R&D stock of foreign‐owned firms has a positive effect on the productivity of domestic firms in the same industry, while the capital stock of foreign firms has no such effect. These results suggest that foreign firms' knowledge spills over within industries through their R&D activities, but not through their production activities. In addition, we find no evidence of spillovers from domestic firms or firms from Hong Kong, Macao, or Taiwan, suggesting that the size of knowledge spillovers is larger when the technology gap between source and recipient firms is larger.