Foreign Direct Investment Spillovers Research Articles

Gender diversity, foreign direct investment spillovers, and productivity: Unraveling the role of female workers in Indonesia

AbstractThis study investigates the impact of gender diversity on firm productivity following foreign direct investment (FDI) spillover. Using Indonesian firm‐level datasets from 2011 to 2015, we employ gender spillovers to assess women's distinct contributions to labor spillovers, often manifested through their impacts on productivity, knowledge sharing, and innovation. A fixed‐effects estimator using Driscoll and Kraay's standard errors was employed to deal with cross‐sectional dependence. We first examined the intra‐industry spillover effects of FDI, followed by spatial spillovers, to evaluate the influence of one province's productivity changes on neighboring provinces. Our findings reveal significant gender‐driven FDI spillovers in the spatial dimension but not within the sector. The consistent results across subsamples (impacts on domestic firms, Java‐non‐Java Island, feminization degree, and industrial technology intensity) align with theoretical studies that emphasize the influence of geographical proximity on FDI spillovers. No significant intra‐industry spillover effects were observed. Further exploration of informal channels, possibly mediating spillover effectiveness, is recommended to provide insights into the observed sectoral dynamics.

The nexus of foreign direct investment and agricultural productivity: does absorptive capacity matter?

PurposeThis study aims to examine the complex effects of foreign direct investment (FDI) on China’s agricultural total factor productivity (TFP) from 2005 to 2020. It also explores the role of absorptive capacity as a moderating factor during this period.Design/methodology/approachEmploying provincial panel data from China, this research measures agricultural TFP using the Stochastic Frontier Approach (SFA)-Malmquist method. The impact of FDI on agricultural productivity is further analyzed using a nondynamic panel threshold model.FindingsThe results highlight technological progress as the main driver of agricultural TFP growth in China. Agricultural FDI (AFDI) seems to impede TFP development, whereas nonagricultural FDI (NAFDI) shows a distinct positive spillover effect. The study reveals a threshold in absorptive capacity that affects both the direct and spillover impacts of FDI. Provinces with higher absorptive capacity are less negatively impacted by AFDI and more likely to benefit from FDI spillovers (FDISs).Originality/valueThis study provides new insights into the intricate relationship between FDI, absorptive capacity and agricultural productivity. It underscores the importance of optimizing technological progress and research and development (R&D) to enhance agricultural productivity in China.

Financial spillovers of foreign direct investment: Evidence from China

We study the financial spillovers of Foreign Direct Investment (FDI) to local suppliers through a trade credit channel and a bank loan channel. Using rich Chinese firm-level data, we provide robust evidence that a high concentration of FDI in downstream industries substantially reduces domestic suppliers' trade credit provision and improves their access to bank loans, especially unsecured loans. A variety of empirical strategies suggest that the effects are causal. Furthermore, the beneficial bank loan effect is more pronounced for local suppliers facing more severe information frictions. We also use supplier-customer links to provide additional evidence for FDI's financial spillovers.

Connect Globally, Thrive Locally: The Spillover Effect of Sister-City Inward FDI on Regional Innovation

Sister cities are a prevalent form of subnational intergovernmental relationships. Such relationships can play an important role in attracting foreign direct investment (FDI). However, we know little about whether and how these relationships influence the localized impacts of FDI in host countries, which is pivotal in achieving the United Nation's Sustainable Development Goals. By integrating the literature on FDI spillover and sister cities, our study proposes that the higher the FDI percentage received by a city from its sister city, the greater the number of patents applied for by firms in that city. Our sample consists of 7273 inward FDI projects into China from 1558 cities in 77 countries between 2003 and 2008. The analysis results support our assumption. We also find that this positive effect is stronger when FDI projects are from recently established sister cities, when the asymmetry in the global economic networks of the two sister cities is smaller, and when regional marketization in host-country is higher.

Foreign Direct Investment and Technology Spillovers: An Analysis of Indian Manufacturing

Using a rich firm-level panel dataset of Indian manufacturing over 2010–2018, this study aims to identify the spillover effects associated with foreign direct investment (FDI). To this end, we distinguish spillover effects into horizontal (Intra-industry linkage) and vertical (backward or downstream and forward or upstream Inter-industry linkages) FDI channels. We employ various semi-parametric methods to tackle the endogeneity issues in productivity estimation. We find that backward spillover from the downstream multinational enterprises is the only source of total factor productivity gains. However, the magnitude of negative forward–vertical linkage is larger than the positive backward–vertical effect. The analysis also broadly compares technology spillovers for domestic and all firms in the sector. Finally, we investigate productivity spillover across industries based on their technology intensity. Our findings suggest that industry heterogeneity is a key driver of FDI spillover. JEL Codes: F23, D24, O33, L1

The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises

PurposeThis paper aims to examine the impact of six possible foreign direct investment (FDI) spillover channels on the total factor productivity (TFP) of Chinese agricultural enterprises and investigate the moderating role of absorptive capacity (technological acumen) on TFP spillover effects.Design/methodology/approachBased on data from 118 agricultural and related Chinese industries, the authors employ a multithreshold regression model to empirically analyze the impact of FDI on the TFP of agricultural enterprises and the threshold effect of absorptive capacity. To overcome potential endogeneity problems, the authors select the FDI stock of corresponding USA industries and the industrial access policy index as instrumental variables and re-estimate the model.FindingsThe results suggest foreign-invested agricultural enterprises are more likely to benefit from FDI, while the “aggregate” FDI spillover effect is negative for domestic agricultural enterprises. However, once threshold effects are introduced, the authors find firms “close to” (“far from”) the technological frontier experience statistically significant positive (negative) spillover effects. Similar results are obtained for virtually all FDI spillover channels for firms in both upstream and downstream industries. FDI spillovers, when they occur, can be a two-edged sword – benefiting some firms at the expense of others.Originality/valueThe authors introduce six FDI spillover channels to examine the impact of FDI on the productivity of foreign-invested and domestic agricultural enterprises. Moreover, the authors analyze the threshold effect of firms' absorptive capacity. These findings can help formulate foreign investment introduction policies based on the characteristics of agricultural enterprises with different ownership structures. These results are also beneficial for agricultural enterprises to better exploit FDI spillover effects and improve their productivity.

FDI spillovers, new industry development, and economic growth

AbstractThe paper investigates the optimal strategy of a small open economy receiving foreign direct investment (FDI) in an optimal growth context. We prove that no domestic firm can enter the new industry when the multinational enterprise's productivity or the fixed entry cost is high. Nevertheless, the host country's investment stock converges to a higher steady state than an economy without FDI. A domestic firm enters the new industry if its productivity is high enough. Moreover, the domestic firm can dominate or even eliminate its foreign counterpart.

Trade and value chain participation: Domestic firms and FDI spillovers in Africa

AbstractData on the location of foreign direct investment (FDI) projects within and across African nations are combined with firm‐level survey data and information on sectoral input–output relationships to assess what types of FDI are more likely to influence participation in global value chains (GVCs) and to investigate the relationship between FDI and the performance of proximate domestic firms. Firm‐level analysis finds evidence of vertical spillovers from exposure to FDI, mainly in the manufacturing sector: domestic firms located near FDI projects that offer potential supply or demand linkages are more likely to engage in trade through imports or exports. Proximity to FDI projects in the same sector (horizontal linkage) is less likely to affect trade or GVC performance of domestic firms. Both vertical and horizontal FDI linkages are associated with higher labour productivity and other dimensions of performance.

Determinants of product sophistication in Vietnam: findings from the firm–multi-product level microdata approach

ABSTRACT By using data from the Vietnam Enterprise Survey and applying the fixed effect model, this study investigates the determinants of product sophistication at the firm – multi-product level in Vietnam-a transitional economy – over 2010–2016. Estimations show that horizontal foreign direct investment (FDI) spillovers have a negative effect on product sophistication. We find a positive contribution of forward spillovers and a negative contribution of backward linkages. An interaction term between forward spillover and productivity has a negative effect but is insignificant. Estimated outcomes also indicate that the average amount of labour, revenue, productivity, technology level, and capital to labour ratio of firms has advantageous impacts on product sophistication. Our results are robust using different measurements of product sophistication. This article suggests that strengthening forward linkages by facilitating the supply of intermediate inputs from multinational firms and improving productivity, capital-to-labour ratio, and governance capability could help Vietnamese firms produce more sophisticated goods.

Outward foreign direct investment and green innovation in Chinese multinational companies

This paper investigates the reverse green innovation spillovers of outward foreign direct investment (OFDI) in Chinese multinational companies and how environmental regulation stringency in host countries moderates the relationship between OFDI and green innovation. The empirical analysis is based on an integrated dataset of publicly listed firms from 2008 to 2018. The findings demonstrate a significantly positive relationship between OFDI and the green innovation performance of multinational companies. It is also shown that environmental regulation stringency in host countries positively moderates the relationship between OFDI and green innovation. Further analysis reveals the variation of the findings across multinational companies in host countries at different development stages, with different ownership and in industries with different pollution intensities. The observations in this paper imply that the institutional environment of investment destinations matters for reverse technology spillovers, particularly reverse green technology spillovers from OFDI.

Global eco‐innovation and its local impact in emerging economies: Boundary conditions of environmental regulations and pollution intensity

AbstractThis paper examines the eco‐innovation effects of foreign direct investment (FDI) by its economic agents, multinational enterprises (MNEs), in the context of emerging economies. It particularly focuses on environmental regulations and industrial pollution intensity as the key moderating mechanisms. We develop hypotheses by combining economic rationality of natural‐resource‐based view and institutional rationality of institution‐based view. Our theoretical discussions highlight the importance of the intersection between the two theories in explaining the eco‐innovation effects of foreign ownership and FDI spillovers, and in particular in allowing a nuanced consideration around the under‐explored boundary conditions of FDI effects in the eco‐innovation domain. Using the propensity score matching method to match domestically owned enterprises (DOEs) with foreign MNE‐invested enterprises (FIEs) in China during the period of 2001–2013, we find clear evidence that FIEs outperform their domestic counterparts of similar characteristics in conducting eco‐innovation. This superior performance is particularly pronounced in cities with higher levels of environmental regulation and industries with higher levels of pollution. Furthermore, we assess the local impact of MNEs on eco‐innovation of DOEs and find evidence that the presence of FDI, in particular, that within cities, leads to increased eco‐innovation in DOEs. FIEs' eco‐innovation spillover effects within a city are conditional on environmental regulation and pollution intensity. Thus, in China, MNEs are found to act as agents of change who not only conduct eco‐innovation in the host country but also stimulate the eco‐innovation of DOEs.

FDI and productivity: facts versus fiction of high growth

PurposeThis paper aims to study the role of foreign direct investment (FDI) channels in improving local firms' productivity. Two transmission channels of knowledge spillovers are empirically investigated. The study focuses on the role of high-growth firms (HGFs) that are assumed to have a higher absorptive capacity.Design/methodology/approachA threshold regression model that considers country and sector fixed effects is applied to investigate 8525 firms across 50 sectors in 12 developing countries in the East Asia and Pacific (EAP) region.FindingsThe author's findings indicate that first, larger firms with external market linkages are more productive. Second, high-growth enterprises are powerful engines of job creation; however, the firms do not outperform other firms in terms of capacity in absorbing FDI spillovers and do not have higher productivity.Research limitations/implicationsThe findings highlight the necessity of rethinking public policy priorities to support firm growth. Policies to maximize the gains from FDI spillovers are discussed.Originality/valueThis is the first study to investigate the strength of FDI spillover channels across different sectors, and the channels' impact on the productivity of local enterprises in the EAP region. This study also explores the potential role of high-growth firms (HGFs) in this interaction via job creation and improving output growth rate.

WHAT DO WE KNOW? FDI INFLOWS, MANAGERIAL SPILLOVERS AND INNOVATION OUTCOMES OF LOCAL FIRMS DURING GLOBAL CRISES

Global crises have become our business reality. How can local firms continue to sustain their competitiveness during these crises through innovation? Previous literature emphasized the role of foreign direct investment (FDI) inflows, but was generally inconclusive. This study examines FDI and managerial spillovers as antecedents of innovation outcomes in 369 local firms in 12 Eurasian countries during the 2008–2009 global financial crisis. The study finds that new product and service introductions by incumbent firms are driven by the local presence of the multinational enterprises (MNEs). Moreover, firms with more non-native managers and CEOs with substantial industry experience have a higher propensity to introduce new products and services. The study contributes to the theory of FDI spillovers and the literature on antecedents of innovation outcomes by showing that non-native managers can serve as channels of managerial spillovers. Furthermore, we conceptually distinguish between managerial spillovers from MNEs and managerial spillovers from abroad (e.g., via hiring managers born or educated abroad).

How Do Productivity Benefits Spill Over Across Firms? Explorations in a Heterogeneous Firm Applied General Equilibrium Trade Model

Considerable diffusion of technology occurs via global trade and foreign direct investment (FDI) while firm heterogeneities cause considerable production heterogeneities. Hi-tech products and investment goods of differentiated varieties from emerging and developed economies are vehicles of superior technology. Given this stylized evidence, we analyse factors facilitating (or inhibiting) technological spillover to domestic firms in the host nations in a counterfactual scenario of a Trans-Pacific-Partnership (TPP) deal. By using a mixture interface of global computable general equi-librium (CGE) models of FDI (GTAP-FDI) and firm heterogeneity model of Global Trade Analysis Project, GTAP Heterogeneous (GTAP-HET), we calibrate impacts of trade and FDI spillovers on: (i) global production, (ii) trade patterns, (iii) welfare and (iv) regional productivity gains. Importance of regional trade agreements and policy for productivity spillovers is highlighted.

The Impact of Inward Foreign Direct Investment Spillovers on Small and Medium Enterprise Performance (Case Study: Zain Telecommunication Company)

The Impact of Inward Foreign Direct Investment Spillovers on Small and Medium Enterprise Performance (Case Study: Zain Telecommunication Company)

The effect of FDI on domestic entrepreneurship: the case of greenfield investment and cross-border M&A activities

PurposeThe paper examines the impact of foreign direct investment (FDI), either greenfield investment or cross-border mergers and acquisitions (M&As), on domestic entrepreneurship.Design/methodology/approachThis paper uses a panel dataset of 104 countries over ten years from 2006 to 2015 and multiple econometric techniques to control for potential endogeneity bias.FindingsFDI, both in the form of greenfield investment and cross-border M&As, exerts positive spillover that encourages domestic entrepreneurial activities. While the benefit of greenfield investment in entrepreneurship is more pronounced in countries with higher levels of market capacity and institutional support, that of cross-border M&As is not influenced by these factors. On the other hand, human capital is important in promoting the positive effects of both types of FDI, and unless the level of human capital in the host economies reaches a certain threshold, greenfield investment can adversely affect domestic entrepreneurship.Practical implicationsPolicies toward FDI need to focus on promoting the driving forces behind FDI spillover to counteract the potential negative crowding-out effect of FDI.Originality/valueThe paper contributes to the existing literature investigating the impact of FDI on domestic entrepreneurship by distinguishing between the two FDI modes of entry and taking into account the moderating effects of sociopolitical characteristics of the host economies.

The Effect of Spillover Foreign Direct Investment on Labor Productivity in Indonesia

The contribution of the manufacturing sector to Indonesia’s GDP reaches more than 20 percent. However, Indonesia has challenges to increase the productivity of workers who work in the industrial sector. The Omnibus law requires the assistance of foreign workers to work in Indonesia so that technology and expertise transfer happen. Foreign workers are believed to have a spillover effect in the form of skills and technology transfer through Foreign Direct Investment (FDI). FDI in the manufacturing sector allows an increase in labor productivity as a result of the spillover effect in the form of the transfer of skills and technology. This study aims to examine the impact of FDI spillover by making a comparison between labor productivity in companies whose ownership is dominated by foreign and domestic. Using data used from a large medium industry survey in 2010-2014. The method used in this research is panel data regression analysis with a cross-section of 28 industry subcategories derived from ISIC and a 5-year time series from 2010-2014, when the manufacturing sector became a source of growth in Indonesia of more than one percent. The results are in general FDI has a positive effect on labor productivity in companies whose ownership is dominated by foreign and domestic ownership. Meanwhile, FDI spillovers on labor productivity did not occur in companies whose ownership was dominated by domestic but occurred in companies whose ownership was dominated by foreigners.

THE INFLUENCE MECHANISM OF OUTWARD FDI REVERSE TECHNOLOGY SPILLOVERS ON CHINA’S GREEN INNOVATION

With rapid global development, outward foreign direct investment (FDI) has become a controversial issue, mainly focused on whether it is helpful to domestic green innovation, especially in developing countries. How does outward FDI reverse spillover technology to China, and does China’s innate endowment restrict it? The relevant mechanisms remain unclear. Therefore, this study investigated the heterogeneous effect of absorptive capacity on the impact path of reverse technology spillovers of outward FDI on green innovation in China. A fixed-effects panel model and stepwise regression analyze the direct relationship between outward FDI and green innovation and the mediating relationship of absorptive capacity. Threshold analysis reveals the mutation point of the mediating effect of absorptive capacity among China’s 31 provinces. Domestic green innovation is directly stimulated by more significant reverse technology spillovers of outward FDI. Absorptive capacity has an indirect impact as an intervening variable. The mediating effect will only make sense on one side of the threshold because the transformation effectiveness of green innovation is improved only by greater absorptive capacity, including adequate green financial support, more outstanding human capital, and a smaller technology gap. Moreover, it revealed significant regional heterogeneity in China.

Spatial impact mechanism of Chinese technology diffusion on CO2 emissions in the countries along the Belt and Road Initiative.

International climate and green technology cooperation under the Belt and Road Initiative (B&R) have attracted significant attention, which led to several studies exploring B&R carbon emissions from the perspective of driving factors. While existing studies fail to consider the diversification of China's technology spillovers, the stochastic impacts by the STIRPAT and GWTR models are integrated in this study to determine the spatial impacts of three types of international technology spillovers (i.e., foreign direct investment (FDI), imports, and migrants) on the carbon emissions of B&R countries through independent innovations and technology following during 2003-2018. China's FDI and migration technology spillovers will increase B&R countries' CO2 emissions through independent R&D and technology following, while imported technology spillovers will decrease B&R countries' carbon emissions through the same means. Therefore, this study shows that China's three technology spillovers show spatial differences in the CO2 emissions of B&R countries. In short, government departments should formulate low-carbon technology policies according to the technology impact path and regional characteristics.

Firm life cycle and foreign direct investment spillover effect: The case of the Czech Republic

AbstractForeign Direct Investment (FDI) and the resulting spillover effects can be important for a country's development and economic growth. Using panel data from 2004 to 2019 in the Czech Republic's manufacturing industry, this paper finds the following. First, FDI firms generate positive horizontal labour effects and backward labour linkage on domestic firms. However, other hypothesized effects of FDI firms, such as horizontal and backward competition and the forward linkage of FDI, were not significant. Second, FDI firms at the mature and shakeout stage generate more spillover than those at the introduction and growth stage. There is no spillover impact on domestic firms by FDI firms at the decline stage. This is the first paper to examine the role of firm life cycle on the spillover effects of FDI.