Refining vertical productivity spillovers from FDI: Evidence from 32 economies

Abstract

Recent empirical contributions using sector-level data have outlined the importance of foreign direct investment backward spillovers on firms’ performances. Using a rich firm-level dataset, we construct measures of vertical linkages at the firm-level to include the differences in firms’ sourcing and supplying behaviour within an industry to better measure vertical spillovers derived from multinational activities. Our quantitative evidence shows that strong backward spillovers occur in our sample, while we find that both positive and negative spillover effects of forward linkages exist. In contrast, we find no evidence supporting the vertical spillovers in our data when using existing standard measures.