Asymmetric spillover effects from MNE investment

Abstract

This article examines the relationship between foreign MNE investment and the productivity of domestic firms, focusing on the boundary conditions that channel the emergence of asymmetric spillover effects from foreign companies. We build an original conceptual framework incorporating the novel notions of pressure to compete and pressure to innovate, both combining different aspects of business-level and industry-wide heterogeneity. By employing data for 12,189 Italian manufacturing firms over the period 2003–2009, we highlight that the interplay between these pressures functions as a catalyst for the emergence of large asymmetries in the relationship between foreign MNEs and domestic firm productivity.