Productivity spillovers from competition between local firms and foreign affiliates

Abstract

Using detailed (unpublished) industry data from Mexican manufacturing, this paper estimates a simple simultaneous model to examine if there are signs of productivity spillovers from competition between local firms and foreign affiliates. The results are affirmative, but only when suspected 'enclave' industries are dropped from the sample. The spillovers from competition are not determined by foreign presence alone, but rather by the simultaneous interactions between foreign and local firms. This may explain some of the contradictory findings of earlier empirical spillover studies, most of which have assumed that the externalities are strictly proportional to foreign presence.

Global Investments and Regional Development Trajectories: The Missing Links

“…The literature on the impacts of foreign investment flows -just one, albeit very important, of the many crossborder flows associated with the new international division of labour -has emphasized the importance of the spillovers from global firms to their host locations (e.g., Blomström & Kokko, 1998;Blomström & Persson, 1983;Javorcik, 2004;Javorcik & Spatareanu, 2008;Kokko, 1996). Conversely, the influence of region-specific advantages on the growth and evolution of the 'hosted' MNEs as well as of the 'sending' regions has remained underexplored.…”

FDI Spillovers and Local Productivity Growth: Evidence from Indian Pharmaceutical Industry

“…Therefore results from these numerous studies on this issue are mixed. Blomström & Wolff (1994), Kokko (1994Kokko ( , 1996 on Mexico; Blomström & Sjöholm (1999), Sjöholm (1999aSjöholm ( , 1999b FDI spillovers may be positive or negative. Net result therefore depends upon the relative strength of these two effects.…”

The Spatial Dimension of Trade- and FDI-Driven Productivity Growth in Chinese Provinces: A Global Cointegration Approach

“…3 Despite this general belief in the benefits of openness, the empirical literature hassurprisingly -reported mixed evidence on the existence of positive spillovers via FDI and foreign trade in emerging economies (Aitken andHarrison 1999, Haddad andHarrison 1993). For instance, from a microeconomic point of view, fierce competition arising from the entry of MNCs is a detrimental factor, which could potentially crowd out the less efficient domestic firms (Kokko 1996). Moreover, the entry of multinational companies, which typically pay a wage premium, may bring about increasing labour costs for domestic firms in competitive markets.…”

“…x Competition: The presence of foreign owned enterprises generally exerts a competitive pressure which might push local firms to improve their technological efficiency (Kokko 1996). In addition, in host countries where competition is fierce, MNCs could be more inclined to transfer their most advanced technologies to their subsidiary companies.…”