Productivity Spillovers from FDI in Malaysian Manufacturing: Evidence from Micro‐panel Data*

Using an establishment‐level panel dataset for the Malaysian manufacturing industries for 2000–2004, we argue that differences in the proxies and degrees of foreign shareholdings in measuring foreign presence lead to opposite signs and/or significance of spillover effects. The results show significant evidence of positive productivity spillovers to local establishments in the same industry, based on a broad measure of foreign presence. However, there is no evidence of positive spillover when employment share is used as a proxy for foreign presence. Furthermore, significant negative spillover effects are related to higher employment shares of wholly foreign‐owned establishments. Although there is no significant difference in labor productivity between wholly foreign‐owned and locally‐owned establishments, both majority and minority foreign‐owned establishments have significantly lower levels of labor productivity than locally‐owned establishments in Malaysia.