Are there positive spillovers from direct foreign investment?: Evidence from panel data for Morocco

Abstract

Many developing countries now actively solicit foreign investment, offering income tax holidays, import duty exemptions, and subsidies to foreign firms. One reason for subsidizing these firms is the positive spillover from transferring technology to domestic firms. This paper employs a unique firm-level dataset to test for such spillovers in the Moroccan manufacturing sector. We find evidence that the dispersion of productivity is smaller in sectors with more foreign firms. However, we reject the hypothesis that foreign presence accelerated productivity growth in domestic firms during the second half of the 1980s. Using detailed information on quotas and tariffs, we also reject the possibility of a downward bias in estimating technology spillovers because foreign investors may be attracted to protected domestic markets.