Technology Transfer Through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?

Abstract

The paper exploits a large set of more than 8,000 firms for ten advanced transition countries in order to uncover the importance of different channels of technology transfer through FDI and its impact on productivity growth of local firms. In addition to direct effects, we also distinguish between intra-industry (horizontal) and inter-industry (vertical) spillovers from foreign owned firms to local firms. After correcting for foreign investment selection bias and controlling for endogeneity of input demand (using a dynamic system GMM approach), direct FDI effects were found to provide by far the most important productivity effect for local firms in transition countries. Direct effects of FDI are found to provide on average an impact on firm's productivity that is larger by factor 50 than the impact of backward linkages and by factor 500 larger than the impact of horizontal spillovers.

Openness and the Efficiency of FDI: A Panel Stochastic Production Frontier Study

“…9 should capture its other effects such as transfer of technology and managerial skills. As Damijan et al (2003) In recognition of the fact that our sample contains countries in two distinctly different phases of economic development, we construct a dummy variable, D, that equals one for the 28 developing countries in the sample and takes on a zero value for the 18 developed nations. We include this variable both additively as an intercept dummy and multiplicatively as a series of slope dummies by interacting it with the other variables in the translog production function and in the associated mean inefficiency equation.…”

“…• 2 In addition to the direct effect of technology transfer associated with FDI, Damijan et al (2003) also point to spillover effects through intra-industry or "horizontal" and inter-industry or "vertical" channels.…”

“…This subject has been studied extensively at both the theoretical and empirical levels (Aitken and Harrison 1989;Bengoa and Sanchez-Robles 2003;Blomstrom et al 1992;Blonigen 2005;Borensztein et al 1995;Chowdhury and Mavrotas 2006;Ciruelos and Wang 2005;Damijan et al 2003;Frimpong and Oteng-Abayie 2006;Lipsey 2000Lipsey , 2002Kohpaiboon 2002). …”

Productivity spillovers through vertical linkages: Evidence from 17 OECD countries

“…It is therefore difficult to generalise from these particular case studies. An exception is a recent paper by Damijan et al (2003) who use firm level data for 10 European transition countries.…”

“…Specifically, we may expect the benefits from FDI to differ for CEEC as these have undergone a process of substantial economic transition and structural changes over the analysed period. Indeed, much research at the micro level has focussed on such transition countries (e.g., Javorcik, 2004, Damijan et al, 2003, Konings, 2001. We therefore allow the coefficients on the FDI variables to differ for CEEC countries.…”