The Role of FDI in Eastern Europe and New Independent States: New Channels for the Spillover Effect

Abstract

Policymakers around the world introduce special policies aimed at attracting foreign direct investments (FDI). They motivate their decision by the spillover effect, which FDI have on domestic companies. Empirical literature so far has failed to find any robust evidence of this effect. In this paper, we make an attempt to explain this finding. Using data from Poland, Romania, Russia, and Ukraine, we demonstrate that not all FDI have positive spillover effects on domestic firms. Spillovers are positive only in the case of export-oriented FDI and, more generally, are driven by the more productive foreign companies. Moreover, effects of FDI on domestic firms are not limited to knowledge spillovers: exposure to foreign technologies alters the form of their production functions. Specifically, foreign entry is associated with higher capital intensity and lower labor intensity of domestic firms in relatively more developed countries, such as Poland, while the opposite is the case in the less developed countries, such as Russia. These results are subject to threshold effects: benefits are more likely to materialize once a relatively large stock of foreign capital is accumulated. Absorptive capacity of domestic firms plays a crucial role in reaping the benefits of FDI. Both, knowledge spillovers and production function changes, occur predominantly in the more educated and the less corrupt regions.

Heuristic Optimization Methods for Dynamic Panel Data Model Selection: Application on the Russian Innovative Performance

“…This is one of the few robust findings of this effect for the Russian economy (Tytell and Yudaeva 2006). Notice that for the static model specification FDI was not selected, and in the dynamic model it is included by all IC with the exception of BIC.…”

“…Another reason may be the low FDI inflow itself in relation to GDP in Russia (Tytell and Yudaeva 2006). For the hypothesis on financial performance the only significant indicator selected with all criteria is the share of aggregated net profits in GRP.…”

Economic upgrading through global value chain participation: which policies increase the value-added gains?

“…This relationship takes a Ushaped form, that is, only below or above certain threshold levels of human capital does the extent of spillovers increase (Meyer and Sinani 2009). Tytell and Yudaeva (2007) found for Romania that productivity spillovers from FDI in manufacturing are significantly lower in regions with a low share of education.…”

Factors of innovative activity in Russian regions: modeling and empirical analysis

“…-более широким определением иннова-ций, используемым ФСГС, которое включает не только новые продукты и услуги, но и то-вары, не производимые до этого внутри страны, а также усовершенствования технологий по снижению издержек производства; -низким притоком ПЗИ в Россию в отно-шении к величине ее ВВП [24].…”