Horizontal Spillovers Research Articles

How to Stir Up FDI Spillovers: Evidence from a Large Meta-Analysis

The voluminous empirical research on horizontal productivity spillovers from foreign investors to domestic rms in transition and developing countries has yielded mixed results. In this paper, we collect 1,205 estimates of horizontal spillovers from the literature and examine which factors inuence spillover magnitude. To identify the most important determinants of spillovers among 43 collected variables, we employ Bayesian model averaging. Our results suggest that horizontal spillovers are on average zero, but that their sign and magnitude depend systematically on the characteristics of the domestic economy and foreign investors. The most important determinants are the technology gap between domestic and foreign rms and the ownership structure in investment projects. Foreign investors who form joint ventures with domestic rms and who come from countries with a modest technology edge create the largest benets for the domestic economy.

FDI Contribution to Technical Efficiency in the Tunisian Manufacturing Sector: Evidence from Micro-panel Data

This paper investigates the contribution of FDI to firms’ technical efficiency based on a two-stage empirical method. Using panel data for 674 firms belonging to the Tunisian manufacturing sector and observed over the period 1997–2001, a bootstrap procedure is applied to correct for serial correlation affecting DEA technical efficiency scores estimated in a first stage. Results obtained from second-stage regressions show that FDI presence at the firm level has a positive effect on its technical efficiency. However, horizontal FDI spillovers are not evidenced while sectoral export activity represents a potential source of technology spillovers for local firms.

Scope Economy And Issues In Technology Management

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: x-small;"><span style="font-family: "Times New Roman","serif"; mso-bidi-font-style: italic;">In the 1980s, studies of technology transfer in dual-use industries have suggested a slow down in military technology spillovers to the civilian sector. This paper takes an econometric approach to measuring the bilateral spillover effect using the airframe manufacturing industry as a case study. The diffusion of technology benefits the industrial art regardless of where technological innovation is originated.<span style="mso-spacerun: yes;">  </span>When horizontal spillover is measured as a bilateral flow of technology transfer regardless of the direction of the flow, i.e., either from military to civilian or from civilian to military, we find no evidence of a slow down, in airframe manufacturing at least, between 1961 and 1985, a period of rapid technological change in both military and commercial aircraft production</span><span style="mso-bidi-font-style: italic;"><span style="font-family: Courier;">. </span></span><span style="font-family: "Times New Roman","serif"; mso-bidi-font-style: italic;">We also trace the flow of technological development in aircraft engine and measure its effect downstream on aircraft manufacturing productivity to obtain an estimate for any vertical spillover.<span style="mso-spacerun: yes;">  </span>We find a negative relationship between upstream innovation and downstream manufacturing cost, but the linkage effect is statistically insignificant.<span style="mso-spacerun: yes;">  </span>We suggest that further study should be pursued in a framework incorporating some concepts from organizational theory to better understand the differences in institutional structure that affect the adaptation and development of dual-use technologies, and the social setting that become necessary to achieve dual-use.<span style="mso-spacerun: yes;">   </span></span></span></p>

IS Use and Quality of Life: A Conceptualization and Empirical Investigation

The nature of IS use and its impacts in everyday life settings are not yet well understood. Drawing on quality of life theory and evidence from the IS acceptance and IS impacts research, this study conceptualizes the relationship between IS use and quality of life as a process that involves vertical and horizontal spillover effects. We empirically investigate this relationship in the context of basic IT use among socio-economically disadvantaged individuals. The research participants received their initial basic IT skill training from community technology centers. The context of our study is the Thai community technology centers supported by Microsoft Unlimited Potential grants. The results strongly support that there are vertical spillover and horizontal spillover mechanisms that relate IS use to domain-specific quality of life and overall quality of life. Implications for research and practice are discussed.

Productivity impact of technology spillover from multinationals to local firms: Comparing China's automobile and electronics industries

This study compares the impact of innovative activities of multinationals on local firms in China's automobile and electronics industries. In the automobile industry we find that both multinationals and local firms in the assembly industry have vertical spillovers to local parts supply firms. In contrast, in the electronics industry, only a small amount of vertical spillover effects from local firms can be found. Furthermore, we find that horizontal spillovers exist in neither the automobile industry nor the electronics industry.

Thinking locally: exploring the importance of a subsidiary-centred model of FDI-related spillovers in Brazil

This paper investigates FDI-related spillovers in Brazil. Contrasting to previous studies on other emerging economies, it found horizontal spillovers. However, spillovers did not arise simply as consequence of technology transfer from MNC headquarters as the standard approach presumes; nor were associated with differences in technological intensity across industries, in domestic firms' absorptive capability. Instead, spillovers were associated with particular kinds of localised knowledge-creation activities by subsidiaries. Those findings have both significant theory and policy implications. They help to make clear the explanatory limitations of the dominant 'centrally-driven' perspectives, and point to the relevance of focusing on subsidiaries' technological behaviour in order to explain the existence or not of FDI-related spillovers. This implies that government policies aiming at simply attracting FDI do not ensure that FDI-related spillovers will automatically take place. Instead, effective policies on this matter should be concerned with the innovative behaviour of already established subsidiaries.

FDI spillovers in the Chinese manufacturing sector

AbstractThis paper uses a new longitudinal dataset of more than 15,000 manufacturing firms to analyse the heterogeneous responses of firms to foreign direct investment in China. Domestic firms operating in sectors where foreign firms are also active have higher total factor productivity. However, the magnitude of such horizontal spillovers depends on the structure and origin of foreign ownership, the export status of firms and the characteristics of the special economic zones firms are operating in.

Productivity spillovers from foreign direct investment in Chinese industries

This paper investigates productivity spillover effects of FDI and relates it to the capital- or labour-intensive nature of the industry. Using a panel data set of 35 industries in China, it shows that the presence and magnitude of FDI spillover effects vary by different channels and the nature of the industry. On average, FDI has no horizontal spillover effects but has positive backward linkage effects. However, there are substantial differences in FDI spillover effects via demonstration, competition and labour mobility between capital- and labour-intensive industries. The findings have important policy implications.

Do Chinese domestic firms benefit from FDI inflow?

Using a large panel dataset covering all manufacturing firms (above a minimum scale) in China from 1998 to 2005, this paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms. In estimating productivity, we control for a possible simultaneity bias by using semi-parametric estimation techniques. We find that Hong Kong, Macao and Taiwan (HMT) invested firms generate negative horizontal spillovers, while Non-HMT foreign invested firms (mostly from OECD countries) tend to bring positive horizontal spillovers in China. These two opposing horizontal effects seem to cancel out at the aggregate level. We also find strong and robust vertical spillover effects on both state-owned firms and non-state firms. However, vertical spillover effects from export-oriented FDI are weaker than those from domestic-market-oriented FDI.

Do local manufacturing firms benefit from transactional linkages with multinational enterprises in China?

This paper examines the linkage effects of foreign direct investment (FDI) on firm-level productivity in Chinese manufacturing. It is found that FDI generates positive vertical linkage effects in Chinese manufacturing at both the national and regional levels, and limited positive horizontal spillovers at the regional level. While OECD firms gain from both vertical and (probably) horizontal linkages, Hong Kong, Macao and Taiwanese firms benefit only from backward linkage effects. In the domestic sector, in which we are most interested, both state-owned enterprises (SOEs) and non-SOEs are hurt by competition from foreign firms in the same industries. While SOEs gain from vertical linkages with foreign firms, non-SOEs are unable to do so. The patterns of productivity spillovers from FDI in Chinese manufacturing seem to be determined by one key factor – the technological capabilities of the firms involved. Important data limitations and policy implications of this research are discussed.

Linking corporate productivity to foreign direct investment: An empirical assessment

Abstract This paper examines whether foreign firms generate productivity spillovers. Despite the relevance of this question to public policy, previous studies have failed to find consistent and conclusive evidence to support the existence of positive spillovers. Using previously unexploited firm-level data over the 1994–1999 period, we attempt to contribute to the literature on productivity spillovers from FDI by analysing the Portuguese manufacturing industry. The results indicate that foreign firms in the same industry of the observed firms (horizontal spillovers) and linkages between foreign firms and their local suppliers or customers (vertical spillovers) do not impact significantly on firms’ productivity. Moreover, we detected no differences on productivity spillovers associated to firm-specific characteristics.

Domestic plant productivity and incremental spillovers from foreign direct investment

We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995–2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms' total factor productivity are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and services, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.

Do Chinese Domestic Firms Benefit from FDI Inflow? Evidence of Horizontal and Vertical Spillovers

Using a large panel dataset covering all manufacturing firms (above a minimum scale) in China from 1998 to 2005, this paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms. In estimating productivity, we control for a possible simultaneity bias by using semi-parametric estimation techniques. We find that Hong Kong, Macao and Taiwan (HMT) invested firms generate negative horizontal spillovers, while Non-HMT foreign invested firms (mostly from OECD countries) tend to bring positive horizontal spillovers in China. These two opposing horizontal effects seem to cancel out at the aggregate level. We also find strong and robust vertical spillover effects on both state-owned firms and non-state firms. However, vertical spillover effects from export-oriented FDI are weaker than those from domestic-market-oriented FDI.

Tough Love: Do Czech Suppliers Learn from Their Relationships with Multinationals?

Many countries strive to attract foreign direct investment (FDI) hoping that knowledge brought by multinationals will spill over to domestic industries and increase their productivity. While the empirical studies have cast doubt on the existence of horizontal spillovers from FDI in developing countries, several recent papers have confirmed the presence of vertical spillovers, which take place through contacts between foreign affiliates and their local suppliers. However, the existing studies rely on industry-level proxies for vertical spillovers rather than information on actual relationships between local companies and multinationals. This study goes one step further by employing a unique dataset from the Czech Republic, which allows us to identify local firms supplying multinationals operating in the country. The data suggest that suppliers are different from other firms. They are larger, have a higher capital-labor ratio, pay higher wages and exhibit a higher productivity level. The evidence is suggestive of both high productivity firms having a higher probability of supplying multinationals as well as suppliers learning from their relationships with multinationals.

Mutual Productivity Spillovers and Clusters in Eastern Europe: Some Empirical Evidence

In recent years FDI inflows towards transition countries have progressively increased, further stimulated by the entrance of some countries in the European Union. Traditional theoretical studies predict that foreign-owned companies serve as a very important source of technology transfer and productivity spillovers for the host countries. At the same time, the current applied literature finds mixed results with regards to the actual spillover effects from foreign-owned to local companies. This strand of literature on FDI is based on the fact that the MNEs' motivations for investing abroad are characterized mostly by the possibility of exploiting their pre-existing ownership advantages. However, a new approach towards MNEs as asset-seeking entities has been recently growing. This paper tests for the presence of traditional direct horizontal spillovers from foreign to domestic firm as well as of reverse horizontal spillovers from domestic to foreign firm in the context of two Eastern European countries (Poland and Romania). We have further introduced the concept of regional clusters as industrial environments theoretically more prone to induce mutual spillovers between foreign and domestic firms. In this respect, this paper examines two hypotheses: firstly, whether the overall effect of direct spillover is greater for firms in clusters compared to non-clustered firms, and secondly whether the reverse spillover effect actually takes place and if clusters have any role. The econometric analysis is based on a sample of more than 7000 manufacturing firms in the two Eastern European countries. By comparing two estimation methodologies, OLS first difference (after having first estimated the coefficients of the production function with the Levinsohn and Petrin estimator), and a dynamic system GMM, we test the presence of direct and/or reverse spillovers between foreign and domestic firms considering the role of regional clusters. The evidence found with reference to direct spillovers in clusters is in some cases positive confirming the hypothesis of a presence of a cluster effect. Reverse spillovers effects have been found in some cases, both in cluster and outside clusters, and even in low-tech sectors. This suggests that the presence of clusters could be a determinant in FDI localization decisions as there is a possibility of reverse spillovers, even if the host country does not possess higher technological capacity. Furthermore, clusters do seem to be industrial environments where the possibility of direct spillovers is considerable.

Foreign Direct Investment Spillovers and the Absorptive Capabilities of Domestic Firms in the Argentine Manufacturing Sector (1992–2001)

Argentina received significant amounts of foreign direct investment inflows during the 1990s. This paper analyses whether positive (or negative) productivity spillovers arose from the increasing presence of transnational corporations (TNCs) affiliates in Argentina. We found that TNCs affiliates had higher productivity levels than domestic firms and that the latter, on average, received neither positive nor negative horizontal spillovers from the growing presence of foreign firms in the local economy. However, evidence of positive spillovers from TNC presence on domestic firms was found for those firms with high absorptive capabilities.

Foreign Direct Investment in Vietnam: Is There Any Evidence of Technological Spillover Effects

In the context of integrating more deeply into the world economy the Vietnamese policy makers have undertaken several measures to attract foreign direct investment to the country, with the culmination of FDI inflows in 2007 reaching over USD 20 billion, an increase of 69% over 2006. The policy has been taken on the ground that the FDI inflows will create employment and bring along the much needed technological advances, which will spill over to domestic firms. In this paper, we use a firm-level panel data constructed from the Census 2000-2005 to investigate not only the horizontal spillovers but also the backward and forward linkages. Adding to the current literature which focused mainly on the spillovers in the manufacturing sector, our paper provide the first estimates of the spillover effects in the service sector (at least in the context of developing countries). We also distinguish between the horizontal output spillovers (which capture demonstration effects and competition effects) and the horizontal employment spillover (which captures the labour mobility effect). The results obtained from our regression models are mixed. Different channels of spillovers are at work for the manufacturing and the service sectors. We find evidence of the positive backward technological spillovers for the manufacturing and positive horizontal spillovers for the service sector.

The Impact of Multinational Enterprise Strategy on Indigenous Enterprises: Horizontal Spillovers and Crowding Out in Developing Countries

Under what conditions does a multinational enterprise's (MNE's) investment in a developing country produce spillovers for local firms operating in the same industry? In this paper I view firms as unique configurations of tacit and codified knowledge, and I propose that the strategies pursued by an MNE will determine whether the investment will create positive externalities, through knowledge diffusion and provision of public goods, or negative externalities, through a crowding out effect on indigenous enterprises.

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.

Horizontal and Vertical FDI Spillovers: Recent Evidence from the Czech Republic

This paper analyzes the effects of foreign direct investment on the sales growth rate of domestic companies in the Czech Republic. Using firm-level panel data from 1995 to 2003, it studies both horizontal and vertical spillovers. The study allows for the lagged nature of spillovers and pays attention to the potential endogeneity of FDI with respect to future industry growth. The results suggest that domestic companies are mostly suffering in the presence of foreign companies, especially in upstream sectors. Negative horizontal and forward spillovers are present mainly in recent years. Time sensitivity is revealed for horizontal spillovers.