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Foreign Direct Investment (FDI) is expected to generate technology spillovers to indigenous firms in transition economies. This paper disentangles the positive effect of technology transfer on the productivity of domestic firms from that of competition. We use a production function framework to estimate the impact of technology transfer from FDI on the growth of sales of domestic firms in Estonia during the period from 1994 to 1999. Employing panel data techniques, we control for industry and firm specific effects and use a Heckman two-stage procedure to control for sample self-selection bias. We find that the magnitude of the spillover effect depends on the characteristics of incoming FDI and, of the recipient local firm. More specifically, spillovers vary with the measure of foreign presence used, and are is influenced by the recipient firm's size, its ownership structure and its trade orientation.

This article addresses the role of formal institutions and informal networks on corporate governance practices. The existing corporate governance literature has mostly examined the formal institutions, such as the effect of legal systems. Our contribution is to consider the effect of informal ‘small world’ characteristics of ownership and board networks. We use the case of Scandinavia (Denmark, Norway and Sweden) to examine these effects. Our empirical results reveal large differences in formal board and ownership structures between the Scandinavian countries, but strong similarities in terms of law enforcement, political stability, government effectiveness, rule of law, control of corruption as well as voice and accountability. We find that all three countries can be characterized as ‘small worlds' in which trust, information diffusion and reputation mechanisms are active governance mechanisms.

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The extensive empirical literature analyzing productivity spillovers from foreign direct investment to local firms provides inconclusive results. Some studies find that foreign presence has a positive impact on the productivity of domestic firms, while others find no evidence or a negative effect. Differences in the results may be attributable to contexts, such as the structural differences between developed, developing and transition economies. However, results may also vary due to different empirical methodologies, notably the use of aggregate versus firm-level data and cross-section versus panel data analysis. We conduct a meta-analysis to investigate reasons for these conflicting results, and provide a revised interpretation of earlier research and its policy implications, and new priorities for future research. Our analysis suggests that the hypothesized spillovers are not confirmed for industrialized countries in the 1990s. Transition economies may experience spillovers, but these have been declining in recent years.