Productivity Spillovers and Foreign Direct Investment in the Greek Manufacturing Industry

Abstract

Firms expand their production abroad if they possess some knowledge-based assets, which, acting as a joint input across plants, give rise to scale economies at the firm level. The scope of this paper is to examine the role of foreign presence in enhancing efficiency, testing first the hypothesis that the ownership structure adopted by the MNFs causes different productivity shifts. Then, productivity spillovers are analyzed and their relationship to the ownership structure is also explored. The research was based on a 4056 manufacturing firms (3840 domestic and 216 foreign affiliates). Research found that the higher the degree of foreign ownership, the more efficient production is. Also, productivity is affected by the existence of financial constraints. Spillovers stemming from foreign affiliates were found most important for the domestic economy, benefiting domestic firms and especially the lower productivity local firms. This finding challenges theory that the degree of foreign involvement does not matter.