The effect of reverse knowledge spillovers on the total factor productivity of emerging markets

Abstract

The aim of this paper is to shed the light on the phenomenon and mechanisms of knowledge spillovers from developed economies to emerging markets through the lens of productivity effects. We hypothesize on the impact of foreign R&D stocks on the total factor productivity growth in emerging markets and on the moderating effect of R&D stocks on the knowledge spillover effects. We use panel data from 38 countries for the period of 2001–2014. Our findings suggest that firms investing in developed markets are able to improve TFP growth via reverse spillovers. Two important findings having managerial value are that, on average, the effect of OFDI on productivity becomes apparent three years after the initial investment. The study also indicates that investment efforts have a negative effect on TFP growth in the year of investment. This research contributes to the ex- isting literature by analyzing bilateral FDI stocks between emerging and developed markets and the impact of both traditional and reverse spillovers on TFP growth in developing economies.