Spatial effects of foreign direct investment in US states

Abstract This paper estimates the aggregate productivity effects of Marshallian externalities generated by foreign direct investment (FDI) in US states, controlling for Marshallian externalities and other spatial spillovers generated by domestic firms. A regional production function framework models externalities and other spatial spillovers explicitly as determinants of total factor productivity. We employ a system generalized method of moments (GMM) estimator to account for the potential endogeneity of FDI and the presence of spatial lags. Using data for US states from 1977–2003, the results indicate that FDI generates positive externalities, while externalities from domestic firms are negative.     

ICT and productivity: conclusions from the empirical literature

Innovation drives economic competitiveness and sustained long-term economic growth. Especially the emergence and intensive utilization of information and communication technologies (ICTs), which spawned the beginning of the digital economy two decades ago, heavily affected the opportunities and efficiency of how firms produce and provide goods and services. We provide an overview of the empirical literature on ICT and productivity and highlight the main results and methodological differences. The majority of studies indicates that the productivity effect of ICT is indeed positive and significant. However, methodological approaches of how to appropriately estimate the ICT effect matter. While aggregate and sectoral growth accounting exercises suggest stronger differences of the ICT effect between US and Europe, firm-level analyses suggest no significant country differences. Moreover, we shed light on the notion of ICT being a General Propose Technology (GPT) enabling further innovations. Most of the GPT evidence on ICT is found for the US, while evidence for European countries is harder to come by. However, more theoretical and empirical research is needed to better understand spillovers and externalities of ICT and how these technologies transform our economies.     

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.     

Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction,with reference to Spain

In this article, we examine whether variations in the level of public capital across Spain's Provinces affected productivity levels over the period 1996 to 2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy (‘industry’) which includes the level of composite services derived from ‘service’ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.     

Foreign ownership wage premia in emerging economies

In this article we examine the relationship between wages, labour productivity and ownership using a linked employer–employee dataset covering a large fraction of the Czech labour market in 2006. We distinguish between different origins of ownership and study wage and productivity differences. The raw wage differential between foreign and domestically‐owned firms is about 23 percent. The empirical analysis is carried out on both firm‐ and individual‐level data. A key finding is that industry, region and notably human capital explain only a small part of the foreign–domestic ownership wage differential. Both white and blue collar workers as well as skilled and unskilled employees obtain a foreign ownership wage premium. Foreign ownership premia are more prevalent in older and less technologically advanced firms. Joint estimation of productivity and wage equations show that, controlling for human capital, the difference in productivity is about twice as large as the wage differential. Overall, results indicate that the international firms share their rents with their employees.     

Trade,labour market rigidity,and aggregate productivity in OECD countries

As the economy becomes more open to trade, aggregate productivity can increase by driving out the least productive firms (the selection effect). Since the selection effect reallocates resources toward the more productive firms, this process can be hindered by rigidity in domestic labour market institutions. Based on the selection effect by Melitz (2003), this article empirically examines how rigidity in labour market institutions affects the consequence of trade on aggregate productivity. Findings from panel dynamic ordinary least square (DOLS) estimators suggest that a high degree of labour market rigidity in an open economy reduces Total Factor Productivity (TFP). In particular, in the case of extremely high labour market rigidity but low foreign R&D capital stocks, openness to trade can cause a country to experience decreasing TFP.     

Foreign investment regulation and firm productivity: Granular evidence from Indonesia

When regulating foreign direct investment (FDI), countries often face a trade-off between pursuing national policy interests and suffering efficiency losses due to FDI restrictions. We demonstrate the presence of this trade-off in the case of a protectionist FDI policy in Indonesia. Using a yearly census of Indonesian manufacturing firms from 2000 to 2015, we link product-level changes in binding FDI regulation due to major regulatory tightening to changes in firm-level productivity. Controlling for an extensive set of fixed effects as well as potential political economy drivers of regulation, we show that a tightening of the regulatory environment was successful in reducing foreign capital reliance among regulated firms, and led to increases in FDI among non-regulated firms producing the same product. Despite compensating increases in domestic capital, regulated firms experienced relative productivity losses. This points towards either a less efficient allocation of domestic capital or a general inferiority of domestic capital as compared to foreign investments.     

FIRM DYNAMICS IN AN URBAN ECONOMY *

We develop a new dynamic general equilibrium model to explain firm entry, exit, and relocation decisions in an urban economy with multiple locations and agglomeration externalities. We characterize the stationary distribution of firms that arises in equilibrium. We estimate the parameters of the model using a method of moments estimator. Using unique panel data collected by Dun and Bradstreet, we find that agglomeration externalities increase the productivity of firms by up to 8%. Economic policies that subsidize firm relocations to the central business district increase agglomeration externalities in that area. They also increase economic welfare in the economy.     

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.     

Impact of Knowledge Capital on the Production of Hungarian Firms

Several studies identified a positive relationship between a firm’s knowledge assets and its productivity. Knowledge assets are usually considered as the level of human and technological capital of the firm. Knowledge assets of the firm may also increase by the so-called spillover effect, especially in less developed host economies of foreign direct investment, which means diffusion of the technology, knowledge and managerial skills from foreign companies to local ones. Beyond the impact of the human and technological capital of firms, this paper also examines the effect of spillover of knowledge on the firms’ performance in Hungary within a linear regression model. The model is based on individual data of Hungarian enterprises, examining the change in performance as the difference of the variables between 1996 and 2014. The paper shows that knowledge assets (concerning human capital) basically determine the firms’ production in Hungary from 2000. The effect of research and development activity was not significant in the investigated period. Foreign shares in the industries’ total equity (proxy for spillover effect) have a weak and, after 2005, a negative influence on performance. The spillover effect in the Hungarian economy was not demonstrated by the regression model.     

Do vertical spillovers differ by investors’ productivity? Theory and evidence from Vietnam

Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm‐level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affect the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low‐, middle‐, and high‐productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity‐enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.     

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.     

An alternative approach to the monitoring of technological diffusion via foreign direct investment: evidence from the Greek manufacturing sector

The existing studies of foreign direct investment and the corresponding technological diffusion process that they generate, focus either on specific parameters of the production process in isolation, or they combine certain parameters to construct indices that are not consistent across studies. The present analysis proposes an alternative approach that captures the entire production process and multinational firms are viewed as the platform that transfers more advanced technologies to the host countries. As multinational firms are able to utilise more efficiently the available production process, an efficiency gap ensues between the domestically owned firms of a country and the multinational firms that operate in it. We capture and provide a measure and a monitoring mechanism of the technological diffusion process via foreign direct investment through the evolution of the efficiency gap between the two groups of firms whilst controlling for other variables that might contribute to such a gap. We apply our approach to the manufacturing sector of the Greek economy that experiences a consistent presence of foreign direct investment inflows over the time period 2001–2007.     

知识外部性、研究开发与经济可持续增长——理论分析与基于中国数据的实证研究

文章在一个具有Marshall-Arrow-Romer知识外部性的四部门经济中,通过研究代表性家庭的动态最优化问题,考察了人力资本投资、研究开发和经济可持续增长之间的内在关系以及相应的政策含义问题,得出的主要结论是:1.人力资本的积累效率和知识外部性的大小会影响经济稳态增长率的高低;2.主观时间偏好率越大、边际效用弹性参数越小的国家稳态增长率越低;经济中技术创新率的提高和教育部门生产效率的改进会提高一国的稳态增长率,反之则反是;3.知识的外部性越大,最终产品部门的产出和研究开发部门的知识增量越高,稳态的经济增长率越高,反之则越低;4.政府应该建立、健全和完善尊重知识产权、激励创新的政策环境,以引导经济达到可持续的稳定增长状态.文章运用1978-2006年的时间序列数据进行实证研究,命题的主要结论得到了经验证据的支撑;同时,也发现了一些不同于已有命题的现象.     

Cross-Country Externalities of Trade and FDI Liberalization

We develop a three-country heterogeneous-firm model and show that FDI liberalization in one foreign country (F1) results in the following: (i) some firms from the home country switch from export to FDI in F1; (ii) skilled labor’s wage rate drops in the home country; (iii) wage inequality between the skilled and unskilled labor decreases; and (iv) some firms from the home country switch from FDI to export to another foreign country (F2). The effects from trade liberalization are just the opposite, but the effects from education improvement are qualitatively the same as FDI liberalization. The cross-country externalities work through the domestic labor market.     

Offshoring and Firm Performance: Evidence from the Italian Manufacturing Industry

The fundamental question of whether offshoring is value enhancing and, more specifically, whether Italian manufacturing firms that undertake offshoring benefit from higher productivity and profitability is explored. Using data from the tenth wave of the “Survey on Manufacturing Firms” conducted by Unicredit‐Capitalia, it was found that, compared with domestic firms, firms relocating activities to a foreign country have different characteristics, and “better” firms might self‐select into offshoring decision. To disentangle the effect of offshoring on firms' performances from the effect of firm characteristics, several variants of propensity score matching are used. A mild and insignificant positive effect of offshoring on profitability was found and also evidence of a statistically significant positive effect of offshoring on productivity.     

Market Size and the Survival of Foreign‐owned Firms*

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.     

International Commodity Taxation under Monopolistic Competition

We analyze non‐cooperative commodity taxation in a two‐country trade model characterized by monopolistic competition and international firm and capital mobility. In this setting, taxes in one country affect foreign welfare through the relocation of mobile firms and through changes in the rents accruing to capital owners. With consumption‐based taxation, these fiscal externalities exactly offset each other and the non‐cooperative tax equilibrium is Pareto efficient. With production‐based taxation, however, there are additional externalities on the foreign tax base and the foreign price level that lead non‐cooperative tax rates to exceed their Pareto efficient levels.     

Environmental spillover effects on firm productivity and efficiency: An analysis of agri-food business in Southeast Spain

Spillover effects are treated as the influence of knowledge and innovation diffusion on an economic activity, but their analysis related to environmental practices within firms is still quite scarce. This study investigates the effect of environmental practices and related spillovers on productivity and efficiency in agri-food firms located in Southeast Spain. The low investment in research and development actions in comparison with the industrial sector, together with the relatively recent application of environmental requirements and the heterogeneity of environmental controls within firms have led to important changes in the organisation and management of their productive activity. These features are especially related to the implications that location and clustering factors have on environmental knowledge and innovation diffusion. Taking environmental management practices as knowledge of capital, we propose a specific analysis that evaluates the impacts of both environmental investment and spillover on the production function. The results indicate the relationship between productivity improvement and environmental practices, also showing the presence of positive spillovers. In a second-stage analysis, the incidence of environmental variables on the individual technical efficiency of firms is also determined. On the whole, the empirical analysis provides evidence of the links between environmental practices spillovers and economic performance.     

WHO GAINS FROM WHOM? SPILLOVERS,COMPETITION AND TECHNOLOGY SOURCING IN THE FOREIGN‐OWNED SECTOR OF UK MANUFACTURING

There is a growing literature explaining foreign direct investment flows in terms of ‘technology sourcing’, whereby multinational firms invest in certain locations not to exploit their firm‐specific assets in the host environment, but to access technology that is generated by host country firms. However, it is far from clear whether the literature has found significant evidence of such activity beyond a few isolated examples. This paper extends this work by allowing for the possibility of multinational enterprises (MNEs) sourcing technology not only from host country firms but also from each other within a host economy. The paper demonstrates that MNEs in the UK do indeed appropriate spillovers both from indigenous firms and from other foreign investors, but that there are also significant competition effects that act to reduce productivity in certain industries. The paper also explores which countries' affiliates gain most from technology sourcing in the UK, and which generate the greatest spillovers within the foreign‐owned sector.