Absorptive Capacity Of Domestic Firms Research Articles

The environmental effect of technical change: A spatial model with city-level data in China

This paper studies the environmental effects of technical change using a spatial model with panel data from 284 prefecture-cities over 2004–2015 in China. We find that the effects of technical change vary across different dimensions of technical change and different pollution indicators. Furthermore, we also provide robust evidence for the existence of the spatial effects of technical change on environmental pollution across cities. First, indigenous technical change displays three patterns of effects on the four pollutants: a positive effect on wastewater, a negative effect on PM 2.5 concentrations, and an inverted U-shaped relationship with SO 2 and soot emissions. The spatial effect of indigenous technical change promotes cleaner industrial productions (fewer emissions of SO 2 , soot and wastewater) but higher PM 2.5 concentrations. Second, technology transfers from foreign direct investment are associated with less pollution except for wastewater, and their spatial effects are unanimously negative on all pollutants. Finally, absorptive capacity can also promote cleaner industrial production, but its spatial effects can do otherwise. Accordingly, the government should take the spatial spillover effects of technical change into account when implementing specific policies, pin down specific pollutants to make full use of the pollution-reducing effects of technical change, and improve the absorptive capacity of domestic firms.

The economic impacts of foreign direct investment in oil and gas sector: A CGE analysis for iranian economy

Abstracts FDI not only increases capital supply in the host country, but can also improve the productivity of domestic firms through knowledge transfer. Dutch diseases and technology spillover can be some of the important effects of FDI in the oil and gas (OIG) sector. The Dutch disease refers to the problems associated with negative consequences of large increases in a country's raw materials such as oil and gas. However, affecting productivity depends on the absorptive capacity or the ability to adapt foreign technology by domestic firms. If Foreign direct investment (FDI) inflow is without productivity spillover, it may have negative effects on economy, especially if the destination of FDI is sectors such as Oil and gas sector(OIG). FDI not only plays a vital role in the development of this sector, but also significantly affects the macro and micro levels. Identifying the type and extent of these effects on economy requires quantitative and empirical evaluations. Therefore, the current research has tried to study the effects of FDI in the OIG sector on Iran's economy using a regional CGE model. The results showed that if FDI does not lead to productivity spillover, it causes Dutch disease in the economy of Iran. Production and employment have decreased in tradable and increased in non-tradable sectors. If FDI improves productivity of the firms, the impacts of Dutch disease will be reduced or eliminated. Therefore, production will be improved in all sectors, and consumer price index will decrease. In this regard, the absorptive capacity of domestic firms plays an important role in the extent of technology spillover and finally reducing the impact of Dutch disease.

Productivity spillovers through backward linkages: The role of the origin of investors and absorptive capacity of domestic firms

AbstractWe argue that multinationals from different home countries have different technologies and input sourcing behavior. These differences impinge on potential productivity spillovers through backward linkages of multinationals and such effects also differ across host local firms depending on their absorptive capacity. Using a panel of Cameroonian manufacturing firms over the period 1993 to 2005, we find supportive evidence of these arguments. There is a negative relationship between the presence of American and European affiliates in downstream sectors and the productivity of Cameroonian firms in the supplying industries and a positive correlation in the case of Asian affiliates. The absorptive capacity of Cameroonian firms mainly explains these divergent results.

Are there export spillovers in manufacturing industry Evidence from Switzerland

Apart from foreign direct investment (FDI), multinationals' (MNCs) export activities are also a valuable source of knowledge for domestic firms (in the home and the host countries). The aim of this paper is to focus in detail on the role of MNCs' export activities in improving the export performance of domestic firms through export spillovers. In particular, we test whether export activities of both Swiss and foreign MNCs located in Switzerland may benefit the Swiss economy when the export specific knowledge that is experienced on foreign markets may spill over to domestic firms, raising their export propensity. We argue that export spillovers do not occur automatically. They depend upon the mechanism by which they take place, the absorptive capacity of domestic firms, the export destination, and the geographical proximity. We found that the probability that domestic firms exports is positively and significantly associated with the presence of MNCs exporters in their sector. Demonstration-imitation is the main mechanism for these benefits. These benefits are larger when specific by destination and when domestic firms are in close proximity to foreign and Swiss MNCs. In addition, domestic firms with high technological capacities benefit more from export spillovers.

Are there export spillovers in manufacturing industry Evidence from Switzerland

Apart from foreign direct investment (FDI), multinationals' (MNCs) export activities are also a valuable source of knowledge for domestic firms (in the home and the host countries). The aim of this paper is to focus in detail on the role of MNCs' export activities in improving the export performance of domestic firms through export spillovers. In particular, we test whether export activities of both Swiss and foreign MNCs located in Switzerland may benefit the Swiss economy when the export specific knowledge that is experienced on foreign markets may spill over to domestic firms, raising their export propensity. We argue that export spillovers do not occur automatically. They depend upon the mechanism by which they take place, the absorptive capacity of domestic firms, the export destination, and the geographical proximity. We found that the probability that domestic firms exports is positively and significantly associated with the presence of MNCs exporters in their sector. Demonstration-imitation is the main mechanism for these benefits. These benefits are larger when specific by destination and when domestic firms are in close proximity to foreign and Swiss MNCs. In addition, domestic firms with high technological capacities benefit more from export spillovers.

Cross sectoral FDI spillovers and their impact on manufacturing productivity

This paper explores the relationship between FDI spillovers and productivity in manufacturing firms in five European transition countries. The novelty of our approach lies in exploring different mechanisms of horizontal spillovers and disentangling the impact of backward and forward vertical spillovers from services and manufacturing sectors. We rely on firm level data obtained from the Amadeus database and annual input-output tables. The results from dynamic panel model estimations reveal that local manufacturing firms benefit from the presence of foreign firms in upstream services, especially in the knowledge intensive services, and in downstream manufacturing sector. Demonstration effect is found to be negatively associated with domestic firms’ productivity, while worker mobility and increased competition appear to be the main channels of horizontal knowledge diffusion. The firms’ productivity is also influenced positively by human capital and intangible assets. Finally, we show that the direction and intensity of both vertical and horizontal spillovers depend on the absorptive capacity of domestic firms.

FDI Spill-Overs, Absorptive Capacity and Domestic Firms' Technical Efficiency in Vietnamese Wearing Apparel Industry

This study empirically examines relationship between FDI spill-overs and technical efficiency of domestic firms and role of the absorptive capacity of domestic firms. Data on Vietnamese Annual Enterprises Survey are exploited to build a firm-level panel data on the Vietnamese wearing apparel industry from 2009 to 2013. By applying stochastic production frontier model, this paper shows that there are positive vertical spill-over effects but no horizontal effects. Moreover, this study finds the negative impact of the absorptive capacity of domestic firms on benefits reaped from FDI externalities.

Identifying FDI spillovers

This paper improves on the strategy used in the literature to identify the spillover effect of horizontal foreign direct investment (FDI) by taking advantage of the plausibly exogenous relaxation of FDI regulations on China's World Trade Organization accession at the end of 2001. In addition, to understand the (aggregate) FDI spillover effect, the paper evaluates two underlying explanations (the agglomeration effect versus the competition effect, the former of which is further moderated by the absorptive capacity of domestic firms) by distinguishing different types of FDI along various dimensions. Finally, the analysis uses an array of performance measures, including total factor productivity, exporting performance, wages, R&D investment, and firm survival, with one single data set to offer a fuller and more nuanced picture of the impact of FDI on domestic firms.

Regional foreign direct investment and technology spillover: evidence across different clusters in India

ABSTRACTThis paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms at the regional level, using firm-level panel dataset covering 22 manufacturing industries in India from 2000 to 2012. In order to estimate the productivity spillovers from FDI at the regional level, we select 10 industrial clusters across 4 regions in India. In estimating productivity, we control for a possible simultaneity bias by using semi-parametric estimation techniques. We find that local firms benefit from horizontal and vertical FDI, but the benefits from the latter are found to be substantially stronger. The absorptive capacity of domestic firms is highly relevant to harvest the spilled technology from foreign-owned firms. Furthermore, we find that domestic firms belonging to high-technology industries benefit more from FDI at the regional level. We also find that market concentration is a crucial conduit for firm innovation, technological upgradation, and having a direct effect on local firm total factor productivity.

DO DOMESTIC FIRMS REALLY BENEFIT FROM FOREIGN DIRECT INVESTMENT? THE ROLE OF HORIZONTAL AND VERTICAL SPILLOVERS AND ABSORPTIVE CAPACITY

This paper examines whether the existence of externalities associated with foreign direct investment (FDI) benefits the domestic firms of Indian manufacturing industries. Empirical findings reveal that local firms benefit from vertical foreign presence, whereas the horizontal foreign presence at the industry level could not substantially raise the value addition of labor across Indian industries. The absorptive capacity of domestic firms is highly relevant to reap the benefit from foreign presence, and could act as a precondition for incorporating the benefit of FDI externalities. Higher concentration and a greater size of the domestic market facilitate to raise the productivity spillovers from foreign presence. Furthermore, the FDI-technology spillovers seem to be higher for RD Wang and Blomstrom, 1992). The introduction of a new technology into a given market may be too expensive and risky for a domestic firm to follow, because of the cost inherent in acquiring its knowledge and uncertainty of the results that may be obtained (Crespo and Fontoura, 2007). If a technology is successfully used by a MNE, then domestic firms will be encouraged to adopt such technology. Barrios and Strobl (2002) suggest that the relevance of this effect increases with the similarity of the goods produced by the two types of firms in case of spillover related to product and process technology.FDI spillovers could be occurred, when the possibility of domestic firms hiring of MNEs workers, who have knowledge and experience of the technology and are able to apply this technology in domestic firms (Fosfuri et al., 2001; Glass and Saggi, 2002). However, the possibility of negative impact arising through this channel could not be avoided, as MNEs may attract best workers from domestic firms by offering higher wages and salaries (Sinani and Meyer, 2004). In addition, the influence of labor mobility on the efficiency of local firms is difficult to evaluate, as it involves tracking the workers in order to investigate their impact on the productivity of other workers (Saggi, 2002).2 The remaining important channels of FDI spillovers are exports, competition, and forward-backward linkages with domestic firms, etc.3FDI and technology imports could be recognized as alternative channels for technology spillover (Kanturia, 2001, 2002; Behera et al. …

Productivity spillovers from FDI and the role of domestic firm’s absorptive capacity in South Korean manufacturing industries

This paper investigates productivity spillovers from foreign direct investment (FDI) and the absorptive capacity of domestic firms using the firm level data of South Korean manufacturing industries. This paper finds that the absorptive capacity has as a role in mitigating the negative spillovers from FDI by capturing additional positive spillovers from FDI. Thus, firms without any absorptive capacity suffer more from FDI than firms with absorptive capacity. However, when the endogeneity problems in absorptive capacity such as R&D and export activity variables are considered, the role of absorptive capacity becomes too insignificant to alleviate the negative spillovers from FDI. In addition, the results from simultaneous quantile regression indicate that the effect of R&D and export activity to absorb the additional spillovers is heterogeneous depending on the conditional productivity distribution.

Foreign direct investment and firm productivity: evidence from firm-level data

This study examines the effect of foreign direct investment (FDI) on productivity of firms in Ghana. The paper also investigates the effect of FDI spillovers on domestic firms in Ghana. The results indicate that firms with high proportion of foreign capital are more productive than those with low or no foreign capital. This could be attributed to the fact that firms with more foreign capital injection are in a better position to employ advanced forms of technology, employ managers with better international exposure and skills in modern management techniques, adopt good corporate governance and management practices, and may have better access to credit from the international financial markets. We find no significant effect of spillovers from FDI on the productivity of domestic firms. Spillovers from FDI may not be high enough to warrant any significant effect on the productivity of domestic firms. It is also likely that the absorptive capacity of domestic firms in Ghana is not strong enough to generate positive spillovers from FDI. The findings of this study have relevant implications for economic policy.

How Does FDI Inflow Affect Productivity of Domestic Firms? The Role of Horizontal and Vertical Spillovers, Absorptive Capacity and Competition

This paper examines the existence of externalities associated with FDI in a host country by exploiting firm-level panel data covering the Polish corporate sector. The mind findings are as follows: Local firms benefit from foreign presence in the same industry and in downstream industries. Absorptive capacity of domestic firms is highly relevant to the size of spillovers. Competitive pressure facilitates backward spillovers, while market power increases the extent of forward spillovers. Host country equity participation in foreign firms is consistent with higher unconditional productivity spillovers to domestic firms.

How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers, absorptive capacity and competition

This paper examines the existence of externalities associated with foreign direct investment (FDI) in a host country by exploiting firm-level panel data covering the Polish corporate sector. We distinguish between horizontal spillovers (from foreign to domestic firms operating in the same industry) and two types of vertical spillovers: backward (from FDI in downstream industries) and forward spillovers (from FDI in upstream industries). The main findings are as follows. Local firms benefit from foreign presence in the same industry and in downstream industries. The absorptive capacity of domestic firms is highly relevant to the size of spillovers: vertical spillovers are larger for R&D-intensive firms, while firms investing in other (external) types of intangibles benefit more from horizontal spillovers. Competitive pressure facilitates backward spillovers, while market power increases the extent of forward spillovers. Horizontal spillovers are particularly strong in services, while the remaining results, including backward spillovers and the role of absorptive capacity and competition, are mainly driven by manufacturing. Host country equity participation in foreign firms is consistent with higher unconditional productivity spillovers to domestic firms. A number of robustness checks yield results qualitatively similar to those obtained in the baseline specification.

The Role of FDI in Eastern Europe and New Independent States: New Channels for the Spillover Effect

Policymakers around the world introduce special policies aimed at attracting foreign direct investments (FDI). They motivate their decision by the spillover effect, which FDI have on domestic companies. Empirical literature so far has failed to find any robust evidence of this effect. In this paper, we make an attempt to explain this finding. Using data from Poland, Romania, Russia, and Ukraine, we demonstrate that not all FDI have positive spillover effects on domestic firms. Spillovers are positive only in the case of export-oriented FDI and, more generally, are driven by the more productive foreign companies. Moreover, effects of FDI on domestic firms are not limited to knowledge spillovers: exposure to foreign technologies alters the form of their production functions. Specifically, foreign entry is associated with higher capital intensity and lower labor intensity of domestic firms in relatively more developed countries, such as Poland, while the opposite is the case in the less developed countries, such as Russia. These results are subject to threshold effects: benefits are more likely to materialize once a relatively large stock of foreign capital is accumulated. Absorptive capacity of domestic firms plays a crucial role in reaping the benefits of FDI. Both, knowledge spillovers and production function changes, occur predominantly in the more educated and the less corrupt regions.

Technology Transfer from Acquisition FDI and the Absorptive Capacity of Domestic Firms: An Empirical Investigation

This paper seeks to establish the role of absorptive capacity in technology transfer from acquisition FDI in U.K. manufacturing. It finds that the rate of productivity change following a foreign take-over is higher the higher the pre-acquisition productivity level of the acquired firm, indicating the importance of absorptive capacity. However, beyond some critical level of initial productivity, the rate of technology transfer due to foreign acquisition starts to decline. It seems that U.K. acquisition targets that had been operating nearer the domestic technology frontier have less to gain from their association with foreign multinationals.

Technology gaps, absorptive capacity and the impact of inward investments on productivity of European firms *

Using a balanced panel of firm-level data on the manufacturing industry in France, Italy and Spain over the 1993-1997 period, this paper examines the impact of foreign presence on the productivity of domestic enterprises. We find positive and significant externalities on Italian firms and negative or non-significant effects on Spanish and French firms. A generalisation of the results obtained for individual countries is attempted by introducing two key variables in the analysis of the impact of inward investments on domestic performances: productivity gaps between foreign and domestic firms, and absorptive capacity of domestic firms. It is shown that high gaps tend to favour positive effects of FDI; while on the contrary absorptive capacity, as measured by local firms’ productivity levels, appears to inhibit externalities from FDI. This would confirm the “catching up” hypothesis, which identifies a positive relation between the size of technological gaps and growth opportunities induced by foreign investments; and would contradict the “technological accumulation” hypothesis, which stresses the role of domestic absorptive capacity and of coherence between foreign and domestic technology as determinants of virtuous effects of inward investments. Nevertheless, we show that this result hides some sectoral specificities. In fact, this pattern is reversed in science based industries, where FDI contribute more to domestic firms’ productivity the higher is their absorptive capacity and the lower is their gap from the average TFP of foreign firms in the sector.