Horizontal Spillovers Research Articles

Spillover effects of foreign and domestic exporting firms on export decisions of local manufacturing firms: Evidence from Vietnam

Our study examines the spillover effects that arise from foreign and domestic exporting firms on the export decisions of local manufacturing firms in Vietnam between 2010 and 2018. There are positive horizontal spillover effects from both foreign and domestic exporting firms, while negative spillover effects are detected through the backward channel. Domestic exporting firms are found to generate positive forward spillover effects, whereas foreign direct investment exporting firms have negative forward spillover effects. Moreover, we observe opposite spillover effects from foreign and domestic exporting firms on the export exit of domestic firms, with a negative impact under the horizontal channel and a positive impact under the backward channel. Our research also reveals the effects of firms’ characteristics on the export participation and exit of domestic firms. The study suggests that the Vietnamese government should focus on enabling the FDI sector to create positive spillover effects, attracting foreign firms with export potential as well as supporting domestic exporting firms using and providing local intermediate inputs, and improving the technological and absorptive capabilities of domestic firms.

Towards an integrated approach to EU foreign policy? Horizontal spillover across the humanitarian–development and the security–migration interfaces

ABSTRACT Combining theoretical insights from works on policy integration and institutional overlap, this article develops a novel analytical framework to account for variations in policy integration in the EU’s external relations. We argue that the greater the level of institutional fit between different areas of the EU’s external relations, the greater the prospects for deepening policy integration through a ‘horizontal spillover’ mechanism. Specifically, we argue that network formation, policy entrepreneurship and political socialisation are key elements of this horizontal spillover mechanism leading towards greater policy integration. Empirically, we explore the relevance of our theoretical claims for the interface between the EU’s development policy and its humanitarian aid policy and between the CSDP and external migration policy in the AFSJ domain. Whilst both policy interfaces have been marked by growing functional pressures, we show that differences in institutional fit have resulted in varying degrees of progress in policy integration.

Factors influencing the participation of Vietnamese enterprises in global value chains: Insights from the manufacturing and processing sectors

This research aims to investigate the factors that impact the participation of companies in Vietnam's Manufacturing and Processing sector in the Global Value Chain (GVC). We employ panel data analysis with a dataset of 387,994 observations from 107,125 enterprises in this industry spanning 2011-2020. Both Ordinary Least Squares (OLS) and Generalized Moment Method (GMM) are used to assess the factors affecting the industry's GVC engagement. The Arellano-Bond test checks for autoregressive processes of order one (AR(1)) or order two (AR(2)) in the model to see if the idiosyncratic error term exhibits serial correlation. The Sargan test checks for over-identifying restrictions in the statistical model. The results reveal that the ratio of large enterprises" exerts the most significant positive influence on the participation of Vietnamese enterprises in the GVCs, closely followed by "Institutional and policy environment." Conversely, HHI, TFP, and GDP growth rates show significant negative impacts. For Foreign Direct Investment (FDI), horizontal spillovers are positive and statistically significant. However, significant results also show a negative coefficient in the Backward GVC and a positive one in the Forward GVC. From these findings, we point out some important policy implications: (1) the government should strengthen favorable conditions for the participation of large enterprises and leading SMEs; (2) It is necessary to improve the institutional and policy environment and refine policies to attract FDI, especially with a focus on promoting forward linkages to facilitate greater engagement of the enterprises in the GVCs.

Complexity of a two-stage R&D game within a cluster supply chain considering vertical R&D spillovers, effective information, and government subsidies

In the research on spillover effects in supply chain game models, most studies are based on complete rationality or consider horizontal spillovers between enterprises, while neglecting vertical spillovers between upstream and downstream enterprises in the supply chain R&D game with bounded rationality. This paper creatively proposes a two-stage cluster supply chain game model that includes vertical R&D spillovers, effective information, and government R&D subsidies. In the product development stage, the supplier and manufacturer use rational estimation and GD mechanisms to conduct R&D simultaneously, taking R&D efforts as a decision variable. In the Stackelberg-Bertrand stage, the supplier and manufacturer successively determine the wholesale price and retail price. Results show that: first, the more effective information the R&D enterprise has, the more conducive it is to the stability of R&D efforts; second, under certain circumstances, R&D subsidies and vertical spillovers may lead to instability in R&D process, while higher R&D costs are conducive to the stable balance of R&D in the supply chain.

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.

Assessing innovation spillovers from publicly funded R&D and innovation support: Evidence from the UK

Knowledgeembodied, explicit, and tacit - drives innovation. Research and development and other knowledge creation activities play a key role, as does the type of external knowledge sourcing central to models of open innovation. As knowledge is a semi-public or public good, however, firms may also obtain knowledge unintentionally through spillovers. We provide the first comprehensive analysis of the innovation spillovers from publicly funded R&D and innovation support activities in the UK to non-participating firms. Analysis is based on matched data from Gateway to Research, the UK Innovation Survey and the Business Structures Database. Conceptually we differentiate between horizontal (intra-industry), vertical (inter-industry) and university spillovers, each of which have different impacts. We also differentiate between the type of firms impacted by spillovers of each type and their position inside and outside clusters. Both reflect firms’ ability to appropriate spillover benefits. Spillovers prove weak in some instances and often limited in scale. University spillovers prove weak, although there is some evidence of a positive effect on patenting in high-tech and larger firms, and on new-to-the-market innovation in low-tech firms. Horizontal spillovers effects prove strongest in some rather specific regions, perhaps reflecting the relevance of industrial clustering in mediating knowledge spillovers, while vertical (inter-industry) effects prove more significant across a wider range of areas. Our study sheds new light on the mechanisms through which investment in the public science system has unintended innovation effects.

Productivity Growth Effects of FDI Spillovers: Evidence from the Türkiye Manufacturing Industries

This study explores the productivity growth effects of horizontal, backward, and forward FDI spillovers in the Türkiye manufacturing sector using industry-level data for the period 2008–2018. While controlling for capital intensity and human capital as proxies for the absorption capacity, we apply system GMM and bootstrapped LSDV estimator to estimate the models. Our findings reveal that backward linkages significantly hamper industrial productivity due to the rudimentary nature of the products in the downstream sector or lack of absorption capacity. While horizontal spillovers retard the productivity growth; forward linkages enhance the growth, though all insignificant. The results depict that all the interactions with capital intensity strongly promote industrial productivity growth.

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.

Is FDI a potential tool for boosting firm’s performance? Firm level evidence from Ecuador

In developing countries, the evidence regarding the direct and indirect effects of FDI on economic and financial performance at the firm level is mixed. To contribute to this literature, we provide empirical evidence of direct and indirect effects of FDI on firm’s performance, using return on assets (ROA), gross revenues and gross revenues growth rate as performance measures. We examine the private formal enterprise sector in Ecuador from 2007 to 2018. Our identification strategy relies on the use of the Generalized Method of Moments (GMM) methodology for dynamic panel data which allows us to control for potential endogeneity, autocorrelation and heteroskedasticity issues. The results suggest that firms with inward FDI grow faster than their counterparts, and firms with higher amounts of FDI as a share of total revenues have on average higher levels of gross revenues. Moreover, we find negative horizontal wages and gross revenues spillover effects on gross revenues growth rates, but positive horizontal gross revenues spillover effects on ROA. There is also significant evidence of negative horizontal spillover effects in all economic sectors, whereas evidence for forward and backward spillovers is heterogeneous across them.

Impact of Foreign Direct Investment From Offshoring on the Efficiency of Russian Companies

This paper examines the impact of foreign direct investment (FDI) from offshoring and developed countries on the efficiency of Russian companies. The empirical basis for this analysis includes the financial performance of 18,804 domestic companies from 2013 to 2020, which provided 150,432 data points. The research methodology included panel regression and DEA data shell analysis, which enables comprehensive analysis of a company’s performance in comparison with other companies. Both horizontal and vertical spillover effects were determined in order to trace the effect of offshore companies. Horizontal spillover consists of the side effects on productivity that exclusively national firms are subject to when operating in the same industry alongside firms with foreign investment. Vertical spillover is due to reciprocal and direct links between foreign companies and their suppliers and buyers. This study indicates that efficiency measured in terms of spillover effects is greater for companies with FDI from white offshores than for companies with FDI from gray and black offshores. Furthermore, the efficiency of investment from developed countries in terms of spillover effects is greater than that of investment from gray and black offshores. The spillover effects from investment by gray and black offshores is negligible because of the return of capital. These results may be informative for the top management of Russian enterprises, shareholders, boards of directors, specialists from financial and tax services, analysts, the Ministry of Finance of the Russian Federation, the Federal Tax Service and other interested parties.

Do Board Gender Quotas Generate Horizontal Spillovers?

AbstractUsing a panel of unlisted Italian banks over the period 2006–2018, we examine the extent to which a law that mandatorily introduced female quotas in the boards of Italian listed companies in 2012 had spillover effects on the boards of unlisted banks, which were not required to comply with the quota. Our results show that both the probability of having at least one woman on the board and the proportion of women on the boards of unlisted banks have been rising significantly after the passing of the law. These findings, which are robust to estimating different specifications and to using different estimation techniques, suggest that the quota law contributed to generating a fairer attitude towards women and, more in general, a change in social norms on gender equality. This may have, in turn, generated isomorphic pressures on unlisted banks, inducing them to mimic the board composition of their listed counterparts.

FDI, indirect horizontal spillover and firm productivity in China’s manufacturing industry

ABSTRACT The indirect spillover effects of manufacturing foreign direct investment (FDI) through upstream suppliers are often ignored by academia. This paper first explains theoretically the mechanism of indirect horizontal spillovers from foreign-funded firms and matches China Industry Business Performance Data and the China Customs Dataset, then empirically analyzes the indirect horizontal spillover effects of China’s manufacturing FDI through upstream suppliers. The results show that China’s manufacturing FDI generates significant positive technology spillovers to local firms through an indirect horizontal mechanism; the vertical spillover effects of China’s manufacturing FDI are asymmetric; the indirect spillover effects are influenced by firm ownership, whether it trades or not, and firm size; and the indirect spillovers generated by FDI restrain the quality of products for exports by local firms in the intra-industry but significantly improve the quality of products for export of upstream suppliers through backward linkages.

Multinationals and domestic total factor productivity: Competition effects, knowledge spillovers and foreign ownership

AbstractWe explore the role of multinational enterprises (MNEs) in Total Factor Productivity (TFP) of domestic firms by addressing some of the long‐standing controversies in the literature, drawing attention to the foreign ownership structure. First, we study the impact of foreign ownership structure on FDI gains. Second, we differentiate between competition effects (CE) and knowledge spillovers (KS). The former induces pro‐competitive improvements by making domestic firms charge lower price mark‐ups and the latter highlight the importance of learning gains through intra‐industry (horizontal) and inter‐industry (vertical) spillovers. We investigate whether KS can potentially vary with the degree of foreign control. Using a sample of manufacturing firms from six European countries, we find that the higher presence of MNEs in the domestic market makes domestic firms charge lower mark‐ups. Only majority and wholly owned MNEs generate economically weak horizontal spillovers that become stronger after controlling domestic firms' absorptive capacity. Backward spillovers from MNEs in downstream industries are domestic firms' primary source of TFP gains. Forward spillovers depend on direct linkages with MNEs and the scope of product differentiation.

The FDI Spillover Effect on the Efficiency and Productivity of Manufacturing Firms: Its Implication on Open Innovation

In this study, we investigated the effects of foreign direct investment (FDI) spillovers on firm production and technical efficiency in Indonesia’s manufacturing sector from 2010 to 2015. We scrutinized three different channels of horizontal spillover, namely, demonstration, technology adoption, and competition channels. We also captured the heterogeneous effect of firms by categorizing them based on their technological intensity (low, medium, or high). Using time-varying stochastic production frontier analysis, we found that manufacturing firms in each technological group benefit from FDI, either from productivity improvement or technical efficiency improvement. High-technology firms mainly benefit from FDI due to their high technological absorption capability. Meanwhile, medium-high and medium-low tech firms increase productivity through the demonstration effect and the technology adoption channel, despite underperforming in technical efficiency. Finally, low-tech firms, which primarily employ unskilled workers, suffer from large inefficiency. We found that increased FDI, combined with improvements in technology absorption capacity, can help revitalize the productivity of low-tech firms. FDI, firm size, and access to foreign inputs all support production effects but have no direct positive impact on firms’ technical efficiency. The results of this study suggest that the government should ensure that domestic firms can absorb the technical capability of a foreign presence. Open innovation can help strengthen foreign–domestic linkages to contribute to growth through the transfer of knowledge, skills, and technologies.

Police Union and Police Association Communications on Social Media and Legitimacy Spillover in Canada

Although literature on police use of social media is expanding, almost all previous research has focused on police services. Existing literature has not examined the social media communications of multi-jurisdictional police unions and other associations. Unions represent police members during collective bargaining. Multi-jurisdictional police associations represent a specific issue or demographic within policing. We examine Twitter use by multi-jurisdictional police unions and associations in Canada. Although we demonstrate that there is variation by type of organization, we nevertheless contend the central aim of these union and associations communications is to provide horizontal legitimacy spillover, legitimizing not only police officers across Canada but the police institution itself. In conclusion, we reflect on what these findings mean for literatures on police social media communications and police unions and associations.

The effect of technological relatedness on firm sales evolution through external knowledge sourcing

This paper analyzes the impact of knowledge spillovers on firm performance measured through total sales, the percentage of innovative sales and a categorical variable that classifies firms into three different groups depending on the stage of their sales growth evolution: upturn, downturn, or transition. We specifically focus on whether there are asymmetric spillover effects depending on the intermediary role of firms’ technological relatedness, which we proxy by the use of external sources of knowledge. Using data on 5900 Spanish firms for the period 2004–2016, we find that spillover effects from intra-sector and upstream knowledge pools are—in general—positive, although with some differences depending on the measure of firm performance and on the moderating role of technological networking. Our results also suggest the presence of a “business stealing effect” in environments with a high proportion of knowledge-based gross added value. Furthermore, we find that spillover effects are asymmetric depending on the firm’s size and intensity of R&D employment. Knowledge spillovers seem to play a more significant role in the case of SMEs than in large companies, and firms with high intensities of R&D employment benefit more from upstream spillovers and less from horizontal spillovers than firms with low intensities.

Foreign direct investment, innovation, and domestic value‐added in exports: Firm‐level evidence from China

AbstractThis paper analyzes the effect of foreign direct investment (FDI) entry on the domestic value‐added ratio (DVAR) in exports using data on Chinese firms between 2000 and 2007. We adopt the difference‐in‐difference method to estimate instrumental variables regressions, treating the adoption of the Revisions to the Catalogue for the Guidance of Foreign Investment Industries in 2002 as a policy shock. Our analysis yields a few findings. First, FDI entry suppresses firm DVAR, a result that continues to hold after taking into consideration the randomness of the policy treatment group, other policy shocks, firm entry and exit, and the use of alternative measures. Second, FDI entry exerts a greater impact on the DVAR of foreign rather than domestic firms, non‐state‐owned enterprises (SOEs) rather than SOEs, and firms located in the eastern rather than central and western regions. Third, FDI entry negatively affects DVAR mainly through its horizontal spillovers after taking into account FDI entry in upstream and downstream industries. Fourth, compared to FDI from Hong Kong, Macao, and Taiwan (HMT), foreign investments from non‐HMT regions are less likely to inhibit firm DVAR. Lastly, we find that value capture capacity, as measured by firm innovation, plays an important role in mediating the impact of FDI entry on DVAR. Taken together, these findings suggest that sustainable domestic economic development cannot rely solely on the introduction of foreign investment and should instead emphasize the importance for firms to improve value capture capacity so as to better capitalize on the positive spillovers generated by foreign investment.

Research on government subsidy strategies for new drug R&D considering spillover effects

This paper studies the pharmaceutical production supply chain system composed of upstream and downstream pharmaceutical enterprises, and explores the impact of government subsidy strategies on the new drug research and development (R&D) decision variables and profits of pharmaceutical enterprises as well as social welfare, when considering both the horizontal spillover effects within the industry and the vertical spillover effects between industries. Comparing and analyzing the impact of these strategies including non-government subsidy strategy, pharmaceutical enterprise innovation input subsidy strategy, pharmaceutical enterprise innovative product subsidy strategy, patient price subsidy strategy, and patient medical insurance subsidy strategy. By establishing a four-stage Cournot duopoly model incorporating spillover effects, the equilibrium solutions are obtained by backward induction, and the impact of spillover effects on decision variables is investigated accordingly. Studies have shown that: (a) Government subsidy strategies can promote pharmaceutical enterprises’ R&D investment and have a positive incentive effect on the pharmaceutical enterprises’ profits and social welfare. (b) The patient medical insurance subsidy strategy is the optimal subsidy strategy, which can generate higher profits for pharmaceutical enterprises and higher social welfare. (c) The horizontal and vertical spillover effects have different effect on decision variables, enterprises’ profits and social welfare under various subsidy strategies.

How does the productivity of foreign-invested enterprises spill over to domestic firms in Vietnamese manufacturing?

This paper investigates the evidence of productivity spillover from foreign-invested enterprises (FIEs) to local firms through horizontal, backward, and forward spillover channels, using establishment-level data from Vietnam in 2006–2017. The paper also considers the effects of foreign ownership types on the existence and magnitude of the productivity spillover. In addition, the paper examines whether the involvement of domestic firms in global production networks (GPNs) impacts on the nature of the spillover. The findings indicate that productivity from FIEs spills over to local firms through backward and forward channels, but not horizontal channels. Ownership structures of FIEs serve as an important determinant of productivity spillover: joint ventures tend to generate more significant positive productivity spillover to domestic firms than fully owned foreign firms. Lastly, local firms operating within GPNs benefit more from the presence of FIEs compared to those involved in horizontal specialization.

Study on the Impact of Institutions on the Labor Productivity of Private Enterprises in Vietnam through the Spillover Effect from State-Owned Enterprises

The paper analyzes the impact of institutions on the labor productivity of small and medium-sized private enterprises through the spillover effect from state-owned enterprises (SOEs). The authors used data samples from three datasets: (i) The Annual Enterprise Survey conducted by the General Statistics Office of Vietnam (GSO) from 2010 to 2018; (ii) Institutional data (PCI) published by the Vietnam Chamber of Commerce and Industry (VCCI) from 2010 to 2018; (iii) GSO 2012 I-O balance sheet and a set of tabular data containing 666,221 observations at the enterprise and provincial levels in Vietnam from 2010 to 2018, including both listed and unlisted enterprises. The model’s experimental result shows that institutional improvement boosts labor productivity of domestic private enterprises through a horizontal and forward spillover channel from SOEs. Through the backward spillover channel from SOEs, how institutional improvement affects the labor productivity depends on the degree of backward spillover channel from SOEs.