Does FDI in Upstream and Downstream Sectors Facilitate Quality Upgrading? Evidence from Russian Exporters*

Abstract

This study examines whether foreign direct investment inflows facilitate upgrading of export quality in host countries. The analysis focuses on the Russian Federation and uses customs data merged with firm-level information from ORBIS. The results show a positive relationship between the quality of products exported by domestic firms and the presence of foreign affiliates in the upstream (input-supplying) industries. This relationship is present irrespective of export destination or FDI origin. The results are robust to using different proxies to measure product quality.JEL Classification numbers: F14, F23, O24. *I am grateful to Beata S. Javorcik for her support and helpful guidance throughout this project. I am also thankful to Maurizio Bussolo, Arti Grover, and Denis Medvedev who helped at various stages of this project, to Guillermo Arenas for sharing the customs data, and to the World Bank for its financial support. The findings, interpretations, and conclusions expressed in this paper do not necessarily represent the opinions of the World Bank Group, its management or its Executive Directors. I would also like to thank Ana P. Fernandes, Alvaro Gonzalez, Christopher D. Miller and Farshad R. Ravasan for helpful comments on the draft. All errors are my own.1 For instance, Javorcik, Keller and Tybout (2008) report that small Mexican producers meet with their input suppliers (usually foreign affiliates) every 6 months to learn about the possibilities of upgrading their products. Suppliers provide the necessary inputs and often prepare a new formula for the product based on these inputs.

Selecting a Technological Progress Path and Upgrading Export Product Quality: Evidence From China

“…Our preliminary conclusion is also reinforced by the findings of these studies (X. Li & Xiao, 2020;Poupakis, 2022;Song et al, 2021).…”

“…In this study, the firms’ export product quality is measured by demand information regression inference (Fan et al, 2018; Khandelwal et al, 2013; Poupakis, 2022). First, it is assumed that the utility function of consuming product d in country b during period of time t is expressed in CES form as follows:…”

“…Most scholars have proven that FDI improves export product quality (Anwar & Sun, 2018; Hayakawa et al, 2020; Y. Li et al, 2021; Poupakis, 2022). While this result is heterogeneous for different types of FDI, S.…”

“…Most scholars have proven that FDI improves export product quality (Anwar & Sun, 2018;Hayakawa et al, 2020;Y. Li et al, 2021;Poupakis, 2022). While this result is heterogeneous for different types of FDI, S. Peng et al (2020) find that only foreign investment deregulation in the transportation, wholesale and retail sectors is the main driver of export product quality upgrading in manufacturing.…”

“…In examining the single path of technological progress and export product quality, scholars have focused on the effects of outward foreign direct investment (H. Rehman & Ding, 2020;Stiebale & Vencappa, 2018;Wan et al, 2021), foreign direct investment (Anwar & Sun, 2018;Hayakawa et al, 2020;Y. Li et al, 2021;Poupakis, 2022), intermediate goods imports (Bas & Strauss-Kahn, 2015;Q. Huang et al, 2021;Song et al, 2021;Song & Zheng, 2020) and firm research and development (Crowley & McCann, 2018;Geng & Chang, 2020;Sheng & Wang, 2021).…”