Domestic plant productivity and incremental spillovers from foreign direct investment

Abstract

We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms' TFP are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and service, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.

Foreign direct investment and regional economic development in Russia: an econometric assessment

“…In addition, several studies of the CEE economies have examined the relationship between the productivity-enhancing effect of FDI and the absorptive capability of the recipient country, and their empirical results are far from consistent (Campos and Kinoshita, 2002;Altomonte and Pennings, 2009;Bijsterbosch and Kolasa, 2010;Nicolini and Resmini, 2010;Damijan et al, 2013;Neycheva, 2013). Moreover, with regard to Russia, as mentioned in Table 4, Brock (2005) has estimated the interaction term of the percentage of change in the cumulative amount of FDI to GRP relative to the prior year and the number of secondary school students per 10,000 residents in order to test a possible synergistic effect between FDI and human capital.…”

Foreign competition, domestic competition and innovation in Chinese private high-tech new ventures

“…First, our study advances a contextually based understanding of foreign competition. Existing theories on FDI spillovers are mainly built on the performance gains of local firms from the presence of foreign players in general (Altomonte & Pennings, 2009;Gorg & Strobl, 2001;Haskel et al, 2007). Such a generic treatment of 'local firms' obscures variations in firms' responses to foreign competition driven by different resource dependence logics associated with their specific ownership type and institutional context, such as transition economies, where market forces are not fully established and government intervention is still prevalent.…”

Spillovers from FDI and local networks

“…Ideally, the measure of total factor productivity should allow for the endogeneity of the investment decision by the firm, in the face of potential changes in productivity. Therefore, we employ the semi-parametric approach suggested by Levinsohn and Petrin (LP) (2003), which is an extended and modified version of the Olley and Pakes (OP) estimator (1996) (For recent empirical applications on LP see (Blalock and Gertler, 2004;Driffield et al, 2008;Temouri et al, 2008;Altomonte and Pennings, 2009). This method allows for firm-specific productivity differences that exhibit idiosyncratic changes over time by controlling for the endogeneity of input selections (Javorcik and Spatareanu, 2008).…”