The Characteristics of Domestic Firms: Materializing Productivity Spillovers from FDI

Using detailed firm-level data from Turkey, for 1991–2001, we analyze the importance of domestic firm capabilities in allowing for productivity spillovers from foreign direct investment. The absorptive capacities we investigate are technology gap, export status, and human capital of domestic firms. The study contributes to the literature by offering an alternative measure of human capital that would be more relevant in a country where there are labor market imperfections. The results provide supporting evidence for the role played by the human capital of domestic firms, i.e., the ratio of skilled, in realizing mainly horizontal spillovers.