Productivity Of Domestic Firms Research Articles

Assessing Productivity Dynamics in the Indian Pharmaceutical Industry: A Comparative Analysis of the Foreign and the Domestic Ownership Influences

This study investigates the impact of competition (foreign vs. domestic) on the total factor productivity of domestic firms. We used two specific indicators to measure foreign and domestic competition in the Indian pharmaceutical industry: market shares and The Herfindahl-Hirschman Index, constructed for a five-digit NIC level, highlighting the intensity of product-level competition. The Levinsohn and Petrin methods calculate the total factor productivity, and dynamic panel data estimators are applied to estimate the model. The research findings indicate that foreign presence has a notable and statistically significant influence on the productivity levels of domestic firms. In contrast, the impact of domestic competition is found to be inconsequential. This research addresses the policy debate by providing convincing evidence that the existence of Multinational Enterprises (MNEs) can increase local business productivity through knowledge spillovers and competitiveness.

Does outward foreign direct investment improve the performance of domestic firms? Case of Korea

AbstractIn this article, we use firm‐level data in Korea from 2010 to 2019 to analyze whether outward foreign direct investment (OFDI) affects the productivity of domestic firms, known as reverse knowledge spillovers. Using propensity score matching and difference‐in‐difference regressions, we verify that OFDI improves the productivity of parent companies. Considering the characteristics of OFDI and the parent company, these positive effects become greater when (1) parent company's absorptive capacity (technology level) is high, (2) OFDI is in the M&A form, and (3) OFDI is toward developed countries. In addition to these direct effects, we investigate whether OFDI improves the productivity of other domestic firms within and across industries, known as horizontal and vertical spillovers. The results demonstrate strong evidence of positive vertical spillovers but not horizontal spillovers. These evidence provide important policy implications about the specifics of outward direct investment that are beneficial to capital‐exporting countries.

FDI spillovers and productivity in Vietnamese manufacturing industries - new insights from the unconditional quantile regression

ABSTRACT This research investigates the effects of FDI spillovers on the productivity of domestic firms by relying on unconditional quantile regression. Using panel data of Vietnamese enterprises over the period 2000–2012, we find evidence of positive spillovers for firms at the lower tails and negative spillovers for those at the upper tails of the productivity distribution. Time and the firm’s legal status are other factors determining the effect of FDI spillovers. Notably, only low productivity state-own enterprises benefit from positive horizontal spillovers, but in the long run rather than in the short run.

Detecting Learning by Exporting and from Exporters

Existing literature at the nexus of firm productivity and export behavior mostly focuses on “learning by exporting,” whereby firms can improve their performance by engaging in exports. Whereas, the secondary channel of learning via cross-firm spillovers from exporting peers, or “learning from exporters,” has largely been neglected. Omitting this important mechanism, which can benefit both exporters and non-exporters, may provide an incomplete assessment of the total productivity benefits of exporting. In this paper, we develop a unified empirical framework for productivity measurement that explicitly accommodates both channels. To do this, we formalize the evolution of firm productivity as an export-controlled process, allowing future productivity to be affected by both the firm’s own export behavior as well as export behavior of spatially proximate, same-industry peers. This facilitates a simultaneous, “internally consistent” identification of firm productivity and the corresponding effects of exporting. We apply our methodology to a panel of manufacturing plants in Chile in 1995–2007 and find significant evidence in support of both direct and spillover effects of exporting that substantially boost the productivity of domestic firms.

Labor misallocation and productivity growth in Vietnamese manufacturing firms

PurposeThis research identifies the level of labor misallocation in Vietnamese manufacturing sector for the period 2005–2019. The paper also examines the effects of labor misallocation on productivity in Vietnamese manufacturing firms controlled by industry- and firm-level factors.Design/methodology/approachThe level of labor misallocation and efficiency gains in total factor productivity (TFP) are assessed using Vietnam's annual enterprise survey data for the period 2005–2019 and Hsieh and Klenow (2009) productivity decomposition framework.FindingsThe results indicate four main points. Firstly, labor misallocation tends to increase from 2005 to 2019. Secondly, labor misallocation by firm ownership and technology level is found to be highest in state-owned enterprise and low-tech industries, whereas foreign direct investment and high-tech firms have lowest labor misallocation. Labor misallocation in small- and medium-sized enterprises is higher than in large-sized enterprises and is equivalent to overall sample. Thirdly, labor misallocation decreases productivity in manufacturing firms. The firm-level factors such as bigger technology gap, external capital, firm scale and poor liquidity ratio decrease productivity in manufacturing firms. Whereas firm-level factors such as Vietnam's accession to the WTO, reasonable corporate tax structure, capital intensity, human capital and firm age increase productivity of manufacturing firms. The industry-level factors such as FDI horizontal, forward and supply backward spillovers promote productivity from foreign firms to domestic ones. Meanwhile, only backward linkages reduce productivity of firms. Finally, by difference-in-differences (DID) method, the result indicates foreign firms have higher average labor productivity than domestic firms before or after Vietnam's accession to the WTO. After joining WTO, the average labor productivity of foreign firms is increased by 854 million VND while the average labor productivity of domestic firms is increased by 895 million VND. The DID between the two groups (domestic firms and foreign firms) before and after Vietnam's accession to WTO is 41 million dong.Research limitations/implicationsThe main limitation of the study is that the market is assumed perfectly competitive. The model focuses on selective factors affecting labor productivity.Originality/valueThe focus of many previous international research papers was generally to look at the level of labor misallocation in developed countries. However, knowledge about labor misallocation is limited, particularly in the context of developing countries. This paper examines the level of labor misallocation by region, ownership, level of technology and firm size on productivity and the effect of misallocation on productivity in Vietnamese manufacturing firms.Peer reviewThe peer-review history for this article is available at: https://publons.com/publon/10.1108/IJSE-09-2021-0552.

Impact of Special Economic Zones on domestic market: Evidence from Russia

ABSTRACT Place-based policies can be an effective instrument for governments to encourage the economic development of a country. A Special Economic Zone (SEZ) is a place-based policy aimed at attracting FDI, employment growth, and supporting new economic reforms. In addition, for emerging economies an SEZ could be a potential catalyst for development; foreign investors can have a drastic impact on the productivity of domestic firms, revenues, and market shares through the implementation of new technologies and the creation of new firms. However, the effects of SEZs on the domestic market at the firm level are largely understudied. In this research, I leverage the large-scale SEZ policy implemented by the Russian government in 2005 that aims to attract foreign investors to specific parts of the country by offering tax relief. The primary objective of this research is to quantify the effects of the Russian SEZ policy on local firms. To examine the effects, I use the generalised Difference-in-Difference methodology and apply it to a panel of firms in Russia for the 2006–2019 period. The data includes time-varying SEZ treatment on firms, firm characteristics, and accounting data. The primary outcome variables of interest are revenues, profits, and total factor productivity. The research findings could contribute to the urban economic literature on place-based policies and may be helpful to policymakers in determining the effectiveness of SEZ place-based policies.

The Effect of Institutions on Productivity Spillovers from FDI to Domestic Firms: Evidence in Vietnam

Purpose: The purpose of this study is to investigate the impact of formal institutions and their components on productivity spillovers from FDI enterprises to domestic firms’ TFP in developing countries like Vietnam. Design/methodology/approach: The study, conducted in two steps to explore the relationship, is to estimate the firm's TFP in accordance with the semi-parametric method of Levisohn and Petrin (2003). Regression is in accordance with the equation with panel data and adjusted by Driscoll and Kraay standard errors. An unbalanced panel data, related to more than 61,600 Vietnamese manufacturing firms from 2012 to 2017, is combined with the Provincial Institutional Quality Survey (PAPI index) and IO table. Findings: The local institutions have a positive impact on promoting learning ability and increasing productivity of domestic firms, especially small and medium enterprises (SMEs) that take better advantage of this effect. Vertical linkages with FDI enterprises assist local firms to increase productivity while horizontal linkages bring in negative effects. Domestic enterprises with high productivity (in the top 25%) receive positive spillover effects from horizontal linkages and vertical linkages and gain positive impacts of the institution on productivity whereas the group of low-productivity enterprises records negative impacts. This research highlights those enterprises operating in the region where institutions have transparency, accountability, participation in comments and effective corruption control can absorb spillovers and improve their productivity as well as the transparency and corruption control are recognized as having a positive impact through horizontal linkages. Research limitations/implications: With the limitation of research data being conducted only on manufacturing enterprises, there is a lack of data on the impact of service enterprises. The study only stops at understanding the impact of formal institutional effects on productivity spillovers whereas informal institutional effects will be studied in the future. Furthermore, the productivity spillovers of FDI enterprises are explored in general besides other FDI forms that will have different productivity spillovers like offshore. From the results of this study, the governments of developing countries should improve their institutions to encourage local enterprises to take the advantage of spillover effects from FDI enterprises as well as pay more attention to regional factors by supplementing development priority policies based on the capacity of each region. Institutional quality at provincial level has a positive impact on productivity spillovers; consequently, it is essential to have policies for further institutional improvement. Originality/value: This is the first research paper on the impact of the institutional factor at provincial level on firm’s productivity in developing countries like Vietnam. Theoretically, the impact of formal institutions on spillover effects from FDI enterprises is also clarified. In addition, our findings have implications for local economic development policies: vertical linkages promote domestic firms to increase their productivity while horizontal linkages of FDI enterprises in the same industry generate adverse impacts. This paper suggests some feasible solutions for SMEs in developing countries towards their productivity improvement.

Gravity of intermediate inputs in productivity spillovers: Evidence from foreign direct investment in China

AbstractThe literature on the effect of multinational firms on the productivity of domestic firms has received wide attention; however, the exact channel of productivity spillover at a more micro firm level is underexplored. Based on a multisector production model, we examine heterogeneous productivity spillovers through the channel of upstream foreign direct investment (FDI) inputs at the firm level. We construct a firm‐level distance statistic for the upstream FDI and estimate the gravity of inputs: A firm is more productive if it gains access to more FDI inputs (general productivity‐enhancing effect) and is geographically closer to upstream FDI firms (proximity effect). We find in the 2000–2007 Chinese firm data that (i) if a domestic firm’s FDI input share increases by 1 percentage point, then its productivity is increased by 2.02%, and (ii) if the firm’s distance from upstream FDI firms is 10% greater, then its productivity is reduced by 0.59%. The results are robust after controlling for FDI firm location selection bias and other productivity spillover channels.

Foreign direct investment and productivity spillovers: a firm-level analysis of Bangladesh in comparison with Vietnam

Foreign direct investment (FDI) is expected to generate external effects—usually termed FDI spillovers—for a host country, and these spillovers are thought to have consequences on the productivity of domestic firms. Despite this strong expectation, the empirical findings on FDI spillover are still indecisive. This study examines firm-level panel data to determine the effects of FDI spillover on firms’ productivity in Bangladesh in comparison to Vietnam. We consider both the horizontal and vertical (backward and forward) spillover effects of FDI. We find evidence that Bangladeshi firms gain productivity improvement through intra-industry or horizontal linkages, whereas Vietnamese firms gain through backward linkages. Our findings suggest that increases in foreign presence in the same industry for Bangladesh and in downstream industries for Vietnam are related with increase in output of domestic firms.

Does foreign investment improve domestic firm productivity? Evidence from a developing country

This study examines the linkages between foreign investment and the total factor productivity of local enterprises within manufacturing industry in Vietnam. The Wooldridge GMM estimation approach is applied to panel data to estimate production function, which allows us to obtain total factor productivity of local firms. We then investigate how foreign investment influences local enterprise productivity through different spillover channels using two-step system GMM, FE and RE estimations. Our consistent findings show that foreign investment has a negative impact on the total factor productivity of domestic enterprises through the competition channel within an industry. There are strong positive spillovers associated with backward rather than forward linkages. Further insights relate to firm ownership, location, and the state of technology in which the different spillovers occur.

Import competition and industry location in a small‐country model of productivity growth

AbstractWe study how import competition affects the regional concentration of industry location in a small open economy with two regions. Industry concentration is linked with firm‐level investment in process innovation through an import competition effect that is increasing in the market share of imported goods and the productivity differential of domestic firms with the rest of the world. We show that increased import competition, through a larger number of imported goods or a faster international rate of productivity growth, leads to greater regional industry concentration by reducing domestic market entry and decreasing the relative productivity of domestic firms.

The Impact of Foreign Direct Investment on Productivity of Domestic Firms: The Case of Sudanese Banking Industry

The research expands existing international business literature by exploring the impact of Foreign Direct Investment (FDI) on domestic banks. It investigates how FDI affects the productivity of domestic banks in Sudan. Many countries strive to attract foreign direct investment (FDI) hoping that knowledge brought by FDI will spillover to domestic industries and increase their productivity. In contrast with earlier literature that tried to find positive interindustry spillovers from multinationals, this study focuses on effects operating in banking industry. The analysis, based on firm-level data from Sudan , the results show evidence consistent with positive productivity spillovers from FDI taking place through contacts between foreign affiliates and their local counterparts . The data indicate that productivity spillovers are associated with foreign owned banks.

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.

Asymmetric spillover effects from MNE investment

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.

Foreign influence, control, and indirect ownership: Implications for productivity spillovers

How does the presence of ‘controlled’ foreign firms affect the productivity of domestic firms in the same industry? We revisit the historical distinction between control and influence by the foreign owner and define ‘controlled’ foreign firms as those with a foreign ultimate owner holding 50% or more of voting shares. Connecting insights from new internalization theory with knowledge-based views of the MNE, we posit that ‘controlled’ foreign firms will generate larger productivity spillovers than non-controlled foreign firms. We use a firm-level panel dataset of 575,844 manufacturing firms (2,343,495 observations) across 20 European countries to test our proposition. We pay careful attention to how firms are categorized as foreign, taking into account both direct and indirect ownership links. Allowing for indirect ownership turns out to be pivotal: there are just as many indirectly controlled foreign firms as foreign firms captured with direct ownership data. We find positive horizontal spillovers from controlled foreign firms and zero spillovers from non-controlled foreign firms. Interestingly, the strongest positive spillovers come from the indirectly controlled foreign firms. The implications of our study extend beyond productivity spillovers to areas such as cross-border M&As, joint ventures, MNE strategies of legitimation, and corporate groups.

Unraveling the Other Side of the Coin: Outward FDI of Emerging-market Multinationals and Reverse Technology Spillovers

Purpose - Building on the literature on foreign direct investment (FDI) spillovers and 2R-based view, we aim to hypothesize and examine whether outward FDI contributes to the productivity of domestic firms in a large emerging market. In addition, we explore how firm-specific knowledge resources and subnational regions may matter considerably in shaping the contribution of outward FDI spillovers to the productivity of domestic firms. Design/Methodology/Approach - We test our hypotheses empirically using a longitudinal dataset of Chinese manufacturing firms and the panel data approach. Findings - We observe the positive contribution of outward FDI spillovers to the productivity of domestic firms in China. Moreover, we demonstrate that subnational regions play a crucial role in explaining the variations in the contribution of outward FDI spillovers to the productivity of domestic firms. Research Implications - Our study conducts an initial examination on whether outward FDI matters for domestic firms and how knowledge resources within firms and subnational regions where firms are located shape the contribution of outward FDI spillovers to the productivity of firms in large emerging markets. Our findings offer important theoretical and practical implications.

Does Chinese Inward Foreign Direct Investment Improve the Productivity of Domestic Firms? Horizontal Linkages and Absorptive Capacities: Firm-Level Evidence from Ethiopia

Publicized as a global call for action in 2015, the United Nations General Assembly (UNGA) has forwarded an agenda of resolutions to achieve the goals of sustainable development by 2030 (SDGs). Due to the specific challenges of funding gaps and the lack of advanced technology, the majority of Sub-Saharan African (SSA) countries are still behind the standard of world development. Since foreign direct investment (FDI) has the potential to bring much-needed capital and efficient technology, FDI has often been considered as a vigorous source of development, even for sustainable development for under-developing economies experienced today. Conspicuously, Chinese outward FDI (OFDI) into SSA has seen a strong upward trend in the 21st Century, after China proclaimed its “go global” strategy. Ethiopia is one of the favored destinations of the trend of Chinese OFDI, which also substantially continues through the SSA region. The hosting economy of Ethiopia expected that Chinese inward FDI comes with capital, efficient technology, and knowledge to contribute innovations through directly improving productivity and competitiveness via technological diffusion to domestic industries and eventually for sustainable development. Against this backdrop, this study utilizes firm-level panel datasets from Ethiopia to address the following couple of research questions. The first question is: are there any productivity differences between the establishment of Chinese-affiliated and domestic firms in the manufacturing industry in Ethiopia? The second is, does the presence of Chinese-affiliated firms provide productivity spillovers for domestic firms in the same industry level for socio-economic development? The investigation was carried out using 2554 manufacturing firm census data, from which 15.04% were Chinese firms operating in Ethiopia. We used the ordinary least squares (OLS) and generalized-method-of-moments (GMM) two-step approaches for estimations. Our findings revealed that, generally, Chinese firms were more productive than local firms and their presence can bring positive potential productivity spillover effects for domestic firms. Specifically, we found that local firms have gained significant positive spillovers when they had a high absorptive capacity, whereas low-absorptive capacity firms suffered negative spillovers. We also found that non-exporting domestic firms experience significant positive spillovers from the presence of Chinese firms.

Foreign capital and domestic productivity in the Czech Republic: a meta-regression analysis

ABSTRACTWe provide a quantitative synthesis of the literature studying the effect of foreign direct investment (FDI) on the productivity of locally owned firms in the Czech Republic. To this end, we collect 332 previously reported estimates and use Bayesian model averaging to address model uncertainty. We find no evidence of publication bias, i.e. no sign of selective reporting of estimates that are statistically significant and show an intuitive sign. Our results suggest that more advanced techniques yield substantially larger positive effects (FDI spillovers). When placing more weight on estimates that solve important identification problems in the literature (such as using data on existing linkages between firms instead of approximations based on input-output tables), we find that, as of 2018, a 10-percentage-point increase in foreign presence is likely to lift the productivity of domestic firms by 11%. The effect is even larger for joint ventures, reaching 19%.

How to survive and compete: the impact of information asymmetry on productivity

This paper studies the impact of information asymmetry on productivity through the foreign direct investment (FDI) channel. Higher information asymmetry (lower transparency) could increase the information cost for investors to distinguish between good and bad investments and thus impede investment, particularly, FDI in which investors are “information disadvantageous of alien”. FDI is an important determinant of productivity growth. Naturally, we connect the two key economic variables and study the influence of information asymmetry on productivity through the channel of FDI. We use data from China’s publicly listed manufacturing firms. Based on a market micro-structure model, we estimate the unobserved information asymmetry using the probability of informed trading (PIN). We estimate the unobserved firm-level productivity using the proxy variable method, assuming that the evolution of productivity is not exogenous but can be shifted by FDI. We find that information asymmetry affects the productivity of domestic firms both positively and negatively, depending on firms’ technology-intensity. When domestic firms are technology-intensive, they can benefit from the knowledge spillovers of FDI. In that case, we find lower information asymmetry, associated with more FDI, results in higher productivity. When domestic firms are non-technology-intensive, they can be hurt by the foreign competition. In this case, we find that lower information asymmetry results in lower productivity.

How Domestic Firms Benefit from the Presence of Multinational Enterprises: Evidence from Indonesia and Philippines

Incentives are provided to attract multinational enterprises (MNEs) to host countries, with the expectation that their technology will spread to domestic firms. The purpose of this study is to examine how domestic firms benefit from the spillover of technology from MNEs. Using balanced panel data obtained from the World Bank Enterprise Survey, this study examined the impact of technology spillover through three channels: demonstration, competition, and worker mobility on productivity of domestic firms in Indonesia and Philippines. This study also explored the importance of domestic firms’ absorptive capacity in capturing benefits from the three spillover channels. The Cobb–Douglas production model was used as the basis for the estimation model. A fixed-effect model for panel data analysis was used to analyze the data. The empirical outcome of this study revealed that worker mobility is the most viable channel of spillover in the two countries. It also showed that firms with high absorptive capacity were found to benefit from all the channels of spillover in both countries, while the firms with low absorptive capacity benefit differently in the two countries. Thus, this study validates the need for domestic firms to develop absorptive capacity in order to benefit from the technology spillover from MNEs.