Foreign firm characteristics,labour market restrictions and FDI spillovers: Evidence from Moldova

This paper investigates how productivity spillovers from foreign to domestic firms are affected by foreign firm characteristics and labour market conditions in Moldova. We use firm-level administrative panel data and annual survey region-sector indicators of labour market conditions in 2005–2014. Baseline regressions show that domestic firms benefit from backward FDI spillovers, while we find no evidence of horizontal or forward spillovers. Spillover effects are heterogeneous and depend on the ownership structure and age of foreign firms. Domestic firms in upstream sectors benefit from both wholly foreign-owned companies (WFOC) and joint ventures (JV). However, JVs need less time in the market for positive spillovers to materialise, while WFOCs only lead to larger spillover effects when they are older. In regions and sectors where firms experience fewer labour market restrictions, backward FDI spillovers are larger. Interacting foreign firm characteristics with labour market restrictions, we find that spillovers through the labour market channel materialise only for older FDI, regardless of ownership type. The results are in line with our expectation that WFOCs need more time than JVs to develop linkages with local suppliers and lead to spillovers through this channel. Moreover, in developing countries labour market restrictions reduce labour mobility and consequently, the size of FDI spillovers across industries.     

Pro-market institutions and outward FDI of emerging market firms: An institutional arbitrage logic

We offer new theory and evidence regarding the effects of pro-market institutions on outward foreign direct investment (FDI) of emerging market firms (EMFs). Drawing on the logic of institutional arbitrage, we integrate the escapism and exploitation mechanisms of EMF internationalization into a unified theoretical context. We propose an inverted U-shaped relationship between host market-supporting institutions (MSI) and the investment scale of an EMF’s FDI project in the country, showing an escape-driven upward slope for low-to-medium MSI levels and an exploitation-driven downward slope for medium-to-high MSI levels. We supplement this main argument with two boundary conditions: the alleviating effect of home market liberalization (HML) and the strengthening effect of home government subsidies (HGS), demonstrating the coexistence and variation of pro- and anti- market institutions in an emerging market. Using information on 1,450 FDI projects conducted by 288 Chinese listed firms in 116 host countries, we obtain supportive evidence for the predicted relationships between the three institutional forces. This study enriches the literatures on institutional arbitrage and pro-market institutions with evidence from EMFs.     

Firm heterogeneity and FDI-related productivity spillovers: A theoretical investigation

A number of existing empirical studies have attempted to estimate the foreign direct investment (FDI)-related productivity spillover effects to domestic firms in host economies using various methodologies and measures of FDI. This literature has produced mixed results. While some studies found positive spillovers, others reported zero or even negative spillovers. In this paper, using a model of firm heterogeneity, we provide a rigorous theoretical justification for the mixed findings. We show that FDI-related productivity spillover effects can be decomposed into a direct and an indirect effect. If the direct effect is positive then relatively less capable domestic firms that were not able to survive in the industry (before the arrival of foreign firms) can enter the industry, which decreases the average (expected) productivity of the industry. If this indirect effect is sufficiently strong then the overall impact of FDI on productivity of domestic firms can be zero or negative. Hence, irrespective of the type of FDI (vertical or horizontal) and control variables included in empirical models, one may find negative or zero spillover effects.     

Foreign Direct Investment and Productivity Spillovers: Firm-Level Evidence From Chilean Industrial Sector

Using firm-level panel data, this article examines whether spillovers from foreign direct investment (FDI) make a contribution to productivity growth in Chilean manufacturing firms. The main contribution of this work is to apply a methodology to estimate, in a consistent manner, the productivity impact of investment climate variables, such as FDI. With this aim, the spillover effects from FDI are analyzed using a stochastic frontier approach (SFA). Productivity growth is decomposed using a generalized Malmquist output-oriented index. The results show positive productivity spillovers from FDI; higher competition is associated with larger spillovers; and firms with high R&D effort gain more spillover benefits compared to those with less R&D effort.     

FDI expansion speed of state-owned enterprises and the moderating role of market capitalism: Evidence from China

Drawing on an institutional logics perspective and isomorphism viewpoint, we posit that the negative impact of state ownership on the speed of foreign direct investment (FDI) expansion is attributed to the state socialism logic, which is inconsistent with market-oriented mechanisms that underpin rapid international expansion. We further argue that firms associated with the market capitalism logic shape an institutional context in which state-owned enterprises (SOEs) may adjust their behaviors by adopting market-oriented practices to expand quickly in the global market. Using outward FDI project information from Chinese listed firms over a fourteen-year period, we find evidence that confirms our theoretical predictions. Our analysis shows that, despite the negative relationship between state ownership and the speed of an SOE’s FDI expansion, both the non-state economy in the firm’s subnational region and privately owned enterprises in its industry sector positively moderate this relationship. This study enriches our understanding of institutional complexity in emerging markets and internationalization of emerging-market firms.     

Technology spillovers: Kenya and Malaysia compared

This paper aimed at investigating the existence of productivity spillovers and their transmission channels in both Kenya and Malaysia firm-level panel data from the manufacturing sector for the period 2000–2005. Both countries have a long history of relying on FDI in industrial development. The existing literature on productivity spillovers suggests that productivity spillovers may be one of the most important effects that foreign MNEs impart to local firms in developing countries. Yet still, few studies exist in both countries on productivity spillovers and their transmission channels. Three spillover channels were examined: demonstration, competition, and information. In addition, the backward linkage channel was examined for the case of Malaysia. The results reveal that there is limited evidence of negative productivity spillovers from foreign firms to domestic firms through the competition effects in Kenya. In Malaysia, there is evidence of positive spillovers from foreign-owned firms to domestic firms through the demonstration effects. In addition, there is evidence of negative spillovers through the competition effects as well as backward linkages. There is also evidence of positive productivity spillovers from domestic firms to foreign-owned firms through backward linkages. Productivity spillovers are found to be dependent on the technology gap.     

The logic of spillover interception: The impact of global supply chains in China

Drawing on the global value chain analysis and institutional views, this paper explains the mechanism of “spillover interception,” a structural obstacle to technology spillovers in emerging economies. Contrary to the widely accepted perception that FDI is expected to generate spillover of intermediate technology in particular, the findings indicate that excess inward FDI could structurally inhibit technology spillovers even at the lower tiers of the supply hierarchy within the emerging economy context. Based on an exploratory case study of the Chinese automotive industry, the paper analyses the net impact of global supply chains, and calls for a more comprehensive policy coordination.     

Transmission channels matter: Identifying spillovers from FDI

The empirical literature on the spillovers of foreign direct investment (FDI) has so far not analysed the well-established theoretical transmission channels through which FDI impacts on domestic firms. This paper shows how channels of transmission matter for productivity spillovers from FDI by providing more fuller and nuanced picture of the effects. We analyse a panel of eight sub-Saharan Africa countries spanning the period 2006–2014 and demonstrate the empirical relevance of distinguishing three channels – demonstration, labour mobility, and competition. We provide measures of these effects and also show that the size, significance, and sign of spillover effects depend on the local absorptive capacity, technology levels, geographical proximity, and foreign ownership structure. Overall, results suggest that demonstration spillovers are large and economically significant, whereas the patterns of labour mobility and competition spillovers are not stable across the various specifications and measures. Finally, the analysis involves several measures of further investigations and robustness checks. Results are robust to the construction of spillover and outcome variables, the introduction of additional explanatory variables and an alternative estimation method.     

Exports and FDI motivations: Empirical evidence from U.S. foreign subsidiaries

Foreign direct investments (FDI) are supposed to bring into the host countries indirect benefits, usually referred as productivity spillover effects. However, an emerging literature analyses the effect with regard to the export performance of local firms finding inconclusive results. This literature is affected by two main shortcomings: firstly, the role played by FDI motivations is largely disregarded and, secondly, it is difficult to generalise results valid across countries. For these reasons, the aim of the paper is that of testing the effects of U.S. FDI on export intensity at the sectoral level in 16 OECD countries over the period 1990–2001 by bringing together international economics and international business perspective on FDI motivations. Through our data, we disentangle asset seeking and asset exploiting FDI motivations distinguishing also the channels through which the effect is going to occur. The findings show that asset exploiting motivations, and in particular market seeking FDI, are those that affect export intensity to a greater extent.     

Cross sectoral FDI spillovers and their impact on manufacturing productivity

This paper explores the relationship between FDI spillovers and productivity in manufacturing firms in five European transition countries. The novelty of our approach lies in exploring different mechanisms of horizontal spillovers and disentangling the impact of backward and forward vertical spillovers from services and manufacturing sectors. We rely on firm level data obtained from the Amadeus database and annual input-output tables. The results from dynamic panel model estimations reveal that local manufacturing firms benefit from the presence of foreign firms in upstream services, especially in the knowledge intensive services, and in downstream manufacturing sector. Demonstration effect is found to be negatively associated with domestic firms’ productivity, while worker mobility and increased competition appear to be the main channels of horizontal knowledge diffusion. The firms’ productivity is also influenced positively by human capital and intangible assets. Finally, we show that the direction and intensity of both vertical and horizontal spillovers depend on the absorptive capacity of domestic firms.     

When Do Local Firms Benefit from Inward Foreign Direct Investment? A Longitudinal Study of China's Manufacturing Sector Covering 1998–2007

Using comprehensive panel data on manufacturing firms in China during the 1998–2007 period, this study examines whether and when recipient local firms benefit from foreign direct investment (FDI). Local firms’ productivity improvements by the presence of foreign entrants are estimated, and according to the results, the relationship between FDI and local firms’ productivity shows an inverted U‐shaped pattern, with productivity increasing up to a certain point beyond which a higher level of FDI reduces local firms’ productivity. More importantly, the U‐shaped pattern is found for FDI from both non‐HMT foreign firms and overseas Chinese HMT (Hong Kong, Macao, and Taiwan) firms. In addition, the U‐shaped pattern varies across subnational regions such that the threshold at which an increase in FDI reduces productivity is lower for indigenous firms in coastal regions. This suggests that in China, local firms in inland and rural regions are the top beneficiaries of spillover effects. © 2015 Wiley Periodicals, Inc.     

Managing FDI technology spillovers: A challenge to TNCs in emerging markets

Prior studies on foreign direct investment (FDI) technology spillovers have offered little guidance to transnational corporations (TNCs) on how to protect and exploit technology across borders. The present paper argues that TNCs can manage technology spillovers through selection of entry modes, selection of technologies, and selection of investment priorities in the affiliates they establish in foreign markets. A number of hypotheses are derived from theoretical analyses and are tested against firm-level data from China. The findings of the paper have significant implications for TNCs that face fierce competition from local firms in emerging markets.     

How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers,absorptive capacity and competition

This paper examines the existence of externalities associated with foreign direct investment (FDI) in a host country by exploiting firm-level panel data covering the Polish corporate sector. We distinguish between horizontal spillovers (from foreign to domestic firms operating in the same industry) and two types of vertical spillovers: backward (from FDI in downstream industries) and forward spillovers (from FDI in upstream industries). The main findings are as follows. Local firms benefit from foreign presence in the same industry and in downstream industries. The absorptive capacity of domestic firms is highly relevant to the size of spillovers: vertical spillovers are larger for R&D-intensive firms, while firms investing in other (external) types of intangibles benefit more from horizontal spillovers. Competitive pressure facilitates backward spillovers, while market power increases the extent of forward spillovers. Horizontal spillovers are particularly strong in services, while the remaining results, including backward spillovers and the role of absorptive capacity and competition, are mainly driven by manufacturing. Host country equity participation in foreign firms is consistent with higher unconditional productivity spillovers to domestic firms. A number of robustness checks yield results qualitatively similar to those obtained in the baseline specification.     

The interplay between home and host country institutions in an emerging market context: Private equity in Latin America

This study examines how the interplay between home and host country regulatory institutions affects the investment strategy of private equity (PE) firms in an emerging market context. To answer this question, we consider three different mechanisms: (1) the institutional hazard avoidance effect, (2) the institutional escapism effect, and (3) the dysfunctional institutions effect. Contrary to conventional wisdom, we argue that regulatory institutional differences between home and host countries can sometimes have a positive rather than a negative effect on investment likelihood. Our findings show that when a host emerging market has a strong regulatory institutional system relative to other emerging markets, it is more likely that this country will attract PE investments from firms based in home countries with very strong and very weak institutional systems. The empirical analyses, based on a polynomial specification and a dataset covering more than 300 PE firms that made close to 1500 investment transactions in Latin America during 1996–2011, are consistent with our main theoretical arguments.     

我国对外直接投资的逆向技术外溢效应研究

本文选取我国对外直接投资比较集中且技术水平比较发达的九个国家(地区),利用我国和九国(地区)对外直接投资与技术创新的投入产出数据,测算我国的全要素生产率、母国和东道国的研发资本存量,实证分析了我国直接投资到这些国家(地区)所产生的逆向技术外溢程度。研究结果表明,我国通过对外直接投资渠道获得的国外研发资本存量能给母国带来正的技术外溢效应,只是由于我国对外直接投资相对吸引外资而言发展缓慢,因而其技术外溢效应相对较低。     

Home country institutional environments and foreign expansion of emerging market firms

We propose that home country institutional environment shapes emerging market firms’ foreign expansion. We argue that better-developed home country institutional environment promotes emerging market firms’ expansion to foreign markets more advanced than the home country, while institutional instability in the home country reduces this propensity. We further hypothesize that the effects of home country institutional environment are contingent on firm-specific government ownership. Data on the foreign expansion of 921 Chinese firms in the period of 1996–2000 provide strong support for the effects of home country's institutional development and institutional instability. We also find that a high degree of government ownership weakens the positive effect of home country's institutional development on emerging market firms’ propensity to expansion to more advanced markets.     

Spillovers from foreign direct investment and firm growth: technological,financial and market structure effects

This article examines spillover effects from inward investment on domestic firm growth in the case of a developed host country. The emphasis is placed on the role of the technological gap between domestic and foreign firms in identifying the importance of technology diffusion from the presence of multinationals. An augmented production function is employed to account for technological, financial and market structure effects. Based on a sample of 2589 manufacturing firms operating in Greece between 1992 and 1997, the analysis provides evidence that the significance of spillovers varies with the relative technological position of domestic firms and is higher in the middle and upper quantiles of the growth distribution. It was estimated that a unit increase in the foreign presence in Greek industry raises output growth by 7% on average, in a five‐year period, after controlling for technological differences among firms. This result is consistent with the ‘absorptive capacity’ hypothesis that the technological capability of the host country relates positively to FDI spillover benefits.     

High ownership concentration and exporting of emerging market firms: evidence from Peru

Despite the extraordinarily high ownership concentration widely observed in emerging market firms as a result of institutional voids, there is little research on how this high ownership concentration affects the exporting behavior of emerging market firms. From principal–agent and institutional perspectives, we hypothesize that high ownership concentration has a negative relationship with export intensity, because, in emerging markets, highly concentrated ownership bridges the interests of owners (principals) and managers (agents) so that principals must be prudent in exploring risky international markets. Moreover, we hypothesize that export country diversification strengthens the relationship between ownership concentration and export intensity, because broad geographic dispersion increases risk exposure and principal-agent problems. Empirical analysis based on a panel dataset for publicly listed firms in Peru from 2005 to 2014 supports the hypotheses. The study highlights the risk aversion attitude activated by ownership concentration, an attitude that protects emerging market firms from overconfidently exploring international business opportunities. The study extends the conventional literature on the interface between ownership concentration and international business in an emerging market context. We also discuss the generalizability of the findings to other emerging markets, e.g. China.     

外商直接投资、劳动力市场一体化与中国纺织业就业

本文研究FDI通过竞争效应、技术溢出效应和制度变迁效应三种渠道对纺织业就业产生的间接影响,并综合考察FDI通过直接渠道和间接渠道对就业产生的总体效应。研究结论表明,FDI促进了纺织业就业,其中FDI对纺织业就业的直接影响是正向的,间接影响是负向的;FDI通过竞争效应和技术溢出效应阻碍了纺织业的就业增加;劳动力市场的一体化程度没有对纺织业就业产生影响。     

Foreign direct investment and entrepreneurship: Does the role of institutions matter?

Development economics, international business, and entrepreneurship literature suggest that foreign direct investment (FDI) has significant positive spillover effects for entrepreneurial activities of host economies. However, the findings of past research are mixed, and they do not always confirm this suggestion. We argue that the reason for conflicting findings may be because of an incomplete understanding of the factors that influence the FDI-entrepreneurship nexus in different contexts. Previous studies have carried out only limited exploration of the contingencies in the FDI and domestic entrepreneurship relationship that may depend on the host country’s institutional capacity. We argue that not all countries can reap the rewards from FDI equally. Rather, we hypothesize that countries need to have a sufficient degree of institutional capacity relevant to specific conditions and appropriate threshold levels to successfully capture the positive spillover effects of FDI on domestic entrepreneurship. Utilizing panel data from 2006 to 2016 for 97 emerging markets, developing and developed countries (at different income levels), and a System Generalized Method of Moments (SGMM) estimator that controls for instrument proliferation in dealing with endogeneity problems, we test this hypothesis. We find that FDI has a negative (crowding-out) effect on domestic entrepreneurship at below-threshold levels of institutional capacity, and a positive (crowding-in) effect at above-threshold levels of institutional capacity. The crowding-out effect diminishes as the institutional capacity changes or improves to meet mutating economic environment conditions. Our findings are robust across a wide range of aggregate and disaggregate measures of different types of institutions and alternative empirical strategies.