Positive Productivity Spillovers Research Articles

FDI, spillover, and government subsidy: Micro-Econometric evidence from China

ABSTRACT By analysing comprehensive firm data from 1999 to 2013 categorized by zip code, we find that Foreign Direct Investment (FDI) companies consistently received more local government subsidies in China. When comparing FDI within the same county and year, it becomes evident that FDI creates positive growth and productivity spillovers for other businesses in the same zip code. Furthermore, there is additional evidence to support the amenities channel as a possible productivity spillover channel. This paper makes a significant contribution to the debate regarding FDI's spillover effects at a disaggregated level.

Modeling the building blocks of country‐level absorptive capacity: Comparing developed and emergent economies

AbstractSeveral studies analyzed the importance of absorptive capacity (AC) to achieve economic development. However, to the best of our knowledge, no study compares the building blocks (BBs) of AC between developed and emergent economies. This paper aims to identify and analyze the impact of the BBs on AC under distinct levels of development (i.e., developed vs. emerging economies) using systematic literature review (SLR) and econometrics. Specifically, both linear and nonlinear analyses were employed. Our findings show that BBs in developed and emergent regions are different. For both groups, R&D, FDI (foreign direct investment), infrastructure, and HDI (human development index) variables are BBs of AC. For developed economies, BBs also contemplate secondary education enrollments, the higher education index, and the percentage of GDP spent on higher education. Moreover, the thresholds of BBs also differ between developed and emergent economies. This identification of BBs and possible AC thresholds is valuable, as it provides information to set goals and strategies before a foreign investment attraction policy. Thus, the results facilitate the development of more suitable strategies to enhance positive productivity spillovers and avoid negative spillovers whenever possible. These results show that policymakers cannot employ the same policies for the development of developed and emerging countries.

Productivity effects of internationalisation through the domestic supply chain

SummaryThis paper investigates productivity effects for a given firm resulting from the import or export of intermediate inputs by domestic upstream and downstream industries. With the use of manufacturing firms in 19 EU countries over the period 2000–2014, we find that domestic access to intermediate inputs that are also exported leads to higher levels of revenue productivity. The effect appears as more prominent for firms with nonforeign ownership and in relatively downstream, low‐tech or labour‐intensive industries. Subsequent exploration of mechanisms uncovers patterns consistent with learning by exporting on the part of upstream supplying industries that generates positive productivity spillovers to downstream firms.

Dynamics of outward FDI and productivity spillovers in logistics services industry: Evidence from China

China’s burgeoning connectivity and alignment with the international logistics system through Foreign Direct Investment (FDI) has powerful developmental implications for the domestic Logistics Services Industry (LSI). However, whether and to what extent the Outward FDI (OFDI) influences the domestic LSI remains an untapped research area. This study attempts to quantify the OFDI-induced productivity spillover effects in the context of China’s LSI by leveraging the most up-to-date data in conjunction with advanced econometric techniques. Our study reveals that the OFDI of logistics enterprises poses a distinctly positive impact on productivity growth in the logistics industry, and that this impact has been further strengthened since the launch of the Belt and Road Initiative. We also demonstrate a long-term bidirectional causality between the logistics enterprises' OFDI and the growth of productivity in the domestic LSI. It implies that enhancing global connectivity and supply chain collaborations requires an effective and efficient logistics operation and management, which in turn provides more opportunities to accrue positive productivity spillovers. The results remain robust with various datasets, specifications, and estimators. The study provides novel insights into the improvement of logistics efficiency through OFDI-facilitated technological spillovers and resource acquisition. With a better understanding of the implications and effectiveness of the Go-Global strategies, the findings can be leveraged as guidelines to assist in making informed decisions for the further development of domestic logistics, as well as for cross-border investments.

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.

Spillovers and Substitutability in Production

Can the existence of positive productivity spillovers between co-workers be explained by the presence of complementarities in a firm's production function? A simple model demonstrates that this is possible when workers perform their tasks sequentially and part of individuals' pay is determined by the firm's output, but also that negative spillovers may arise when workers can raise overall output unilaterally. Data from major league baseball support these predictions. They show that the pairs of players who are most complementary in the production process exert the largest positive spillovers on each other, but that negative spillovers predominate between all player pairs.

In Search of Determinants of FDI Forward Spillovers: A Meta-Analysis

Drawing on a unique dataset of 530 estimates from 19 studies on foreign direct investment forward productivity spillovers in China, our prime objective is to investigate determinants of forward spillovers from foreign direct investment using Bayesian Model Averaging based Meta-Analysis. Our results suggest that forward spillovers vary across firm attributes, including the ownership structure of foreign firms, the origin of foreign firms, market orientation of foreign firms, the ownership structure of local firms and the technological levels of local firms. Specifically, wholly-owned subsidiaries yields positive technology diffusion to local firms in upstream sectors while joint ventures negative; both foreign firms from Hong Kong, Macao and Taiwan and other economies create negative spillover effects on local buyers; local-orientated foreign firms are likely to generate positive productivity spillovers while export-orientated foreign firms negative; non-state-owned enterprises are likely to benefit more forward technology spillovers from foreign direct investment than state-owned enterprises; middle-tech local firms tend to obtain more forward productivity spillovers than high-tech local firms and low-tech local firms.

Estimation of foreign MNEs spillovers in Spain

ABSTRACTUsing Spanish firm-level data, we estimate productivity effects of spillovers from foreign multinationals to domestic firms in both manufacturing and service sectors. We find evidence of a positive productivity effect from multinationals on domestic firms operating in the same industry. Analyzing inter-industry linkages, we find evidence consistent with positive productivity spillovers from forward linkages (i.e. from suppliers to buyers) and negative productivity spillovers from backward linkages (i.e. from buyers to suppliers). Our main results hold when analyzing differences between multinational and domestic firms, and for periods of economic growth and recession, although some differences arise. Interestingly, we find evidence supporting a positive role of spillovers during the last recession period.

Foreign direct investment and the performance of indigenous firms in China’s textile industry

This paper contributes to the debate on the effect of foreign direct investment (FDI) on indigenous firms in host economies. Using a Melitz-type theoretical model involving firm heterogeneity, we first show that FDI affects the revenue of indigenous firms, in both domestic and export markets, through a direct as well as indirect channel. In the presence of positive FDI-related productivity spillovers, the direct effect is positive but the indirect effect is negative. As the overall effect cannot be unambiguously determined, in stage two, we further investigate this issue by using firm level data from China’s textile industry over the period 2005–07. We find that FDI in China’s textile industry decreases (increases) the revenue of indigenous firms in the domestic (export) market. The empirical results are also robust across (i) alternative measures and (ii) sources of FDI.

Identifying Productivity Spillovers Using the Structure of Production Networks

Despite the importance of agglomeration externalities in theoretical work, evidence for their nature, scale, and scope remains elusive, particularly in developing countries. Identification of productivity spillovers between firms is a challenging task, and estimation typically requires, at a minimum, panel data, which are often not available in developing country contexts. In this paper, we develop a novel identification strategy that uses information on the network structure of producer relationships to provide estimates of the size of productivity spillovers. Our strategy builds on that proposed by Bramoulle et al. (2009) for estimating peer effects, and is one of the first applications of this idea to the estimation of productivity spillovers. We improve upon the network structure identification strategy by using panel data and validate it with exchange-rate induced trade shocks that provide additional identifying variation. We apply this strategy to a long panel dataset of manufacturers in Indonesia to provide new estimates of the scale and size of productivity spillovers. Our results suggest positive productivity spillovers between manufacturers in Indonesia, but estimates of TFP spillovers are considerably smaller than similar estimates based on firm-level data from the U.S. and Europe, and they are only observed in a few industries.

Benefit or damage? The productivity effects of FDI in the Chinese food industry

We investigate the impact of foreign direct investment (FDI) on the total factor productivity of Chinese food firms using firm-level census data between 1998 and 2007 (174,940 sample food firms). We test for within-firm, within-industry, and vertical effects. We find that the effect of FDI on the productivity of Chinese food firms depends significantly on the type of FDI and its countries of origin. FDI from non-HMT (Hong Kong, Macaw and Taiwan) regions can improve the productivity of the invested firm, and also increases the productivity of domestic food firms through vertical industry linkages. However, domestic food firms may be crowded out by non-HMT investment in the same industry. HMT investment can generate positive within-industry productivity spillovers, but negative vertical spillovers. Our findings have immediate implications for policymakers in China, as well as for governments of less developed countries that are formulating foreign investment policies.

Production spillovers: Are they valued?

Workers can contribute to total firm production directly through their own output or indirectly through their influence on the output of co-workers. Workers with positive productivity spillover effects cause individuals around them to perform better and increase overall team production. In contrast to the “peer effects” literature, workers with positive productivity spillovers may not be the workers with the highest levels of personal output. Such productivity spillovers are important for team success even though they play only a minor role in determining worker pay.

Does foreign direct investment improve the productivity of domestic firms? Technology spillovers, industry linkages, and firm capabilities

This paper explores how industrial linkages, firm capabilities, and the geographic location of domestic firms affect the diffusion of technology brought by foreign direct investment. I hypothesize that local firms are more likely to improve efficiency when they receive better product inputs from foreign suppliers and technology support by foreign customers, and such transfer of knowledge is more effective when the recipient has high absorptive capacity and is located near the source of knowledge. Empirical test using China’s manufacturing firms finds positive productivity spillovers between foreign suppliers and their domestic customers. However, there is no positive spillovers from foreign-owned customers or competitors. Domestic firms’ in-house R&D capital facilitates learning from foreign firms. Local firms learn from both joint ventures and wholly-owned foreign subsidiaries and the effects are larger from wholly-owned subsidiaries.

FDI effects on the labor market of host countries

This paper surveys literature on impact of foreign direct investments (FDI) on host country?s labor market, including employment, wages, labor productivity, skill premium, and inequality. Meta-analysis of empirical findings suggests that there is solid consensus with respect to wages: in both developing and developed countries FDI leads to higher wages in target firms and industries. Majority of the papers also find positive productivity spillovers as well as increase in skill premium as a result of FDI, especially in developing economies. We analyze all the findings together to address possible mechanisms of FDI effects on labor in target firms, in competing firms, and in vertically related firms. We present a stylized model that is consistent with many empirical regularities found in meta-analysis of empirical literature.

Technology spillovers: Kenya and Malaysia compared

This paper aimed at investigating the existence of productivity spillovers and their transmission channels in both Kenya and Malaysia firm-level panel data from the manufacturing sector for the period 2000–2005. Both countries have a long history of relying on FDI in industrial development. The existing literature on productivity spillovers suggests that productivity spillovers may be one of the most important effects that foreign MNEs impart to local firms in developing countries. Yet still, few studies exist in both countries on productivity spillovers and their transmission channels. Three spillover channels were examined: demonstration, competition, and information. In addition, the backward linkage channel was examined for the case of Malaysia. The results reveal that there is limited evidence of negative productivity spillovers from foreign firms to domestic firms through the competition effects in Kenya. In Malaysia, there is evidence of positive spillovers from foreign-owned firms to domestic firms through the demonstration effects. In addition, there is evidence of negative spillovers through the competition effects as well as backward linkages. There is also evidence of positive productivity spillovers from domestic firms to foreign-owned firms through backward linkages. Productivity spillovers are found to be dependent on the technology gap.

On the sectoral linkages and pattern of economic growth in India

This study examines the linkages between agriculture, industry, and services sectors, and analyses the pattern of economic growth in India. The vector autoregression model is estimated on annual data for the period 1950–1951 to 2009–2010. The results provide strong support for the long-run and a weak support for the short-run linkages among sectors. The development of rural sector is generally synonymous with the growth of agriculture and that of urban sector with the growth of manufacturing and services sectors. The services sector bypassed the successful completion of the process of industrialization, and prematurely emerged as the dominant driver and key lever of economic growth. The development strategy needs to be rebalanced to revitalize agriculture to generate rural employment, support industry, and provide the wage goods and food security. The revitalization of agriculture needs to be complemented by the development of highly productive and internationally competitive manufacturing sector to boost the manufacturing goods exports, stimulate the positive productivity spillovers, provide productive job opportunities to surplus labour in agriculture, generate urban employment, reduce underemployment and disguised unemployment in the informal sector of the urban economy, and accomplish the process of industrialization.

Foreign affiliates, technological catch-up, and productivity growth: Evidence from MENA oil and non-oil-producing countries

Previous studies on Middle East and North Africa (MENA) countries have not investigated the hypothesis that foreign affiliates yield positive productivity spillovers for host countries. This study contributes to the empirical literature by investigating foreign direct investment (FDI) as a channel of productivity growth in MENA oil and non-oil-producing countries. To illustrate the link between FDI, technological catch-up, and host-country labor productivity growth, we present a simple theoretical model. Using a cross-sectionally correlated and timewise autoregressive (CCTA) model, our panel data regression results show that FDI spillovers are insignificant in oil and non-oil-producing countries during the period 1992–2008, whereas technological catch-up significantly affects labor productivity growth in these countries. Two aspects can explain these results. First, local firms' competitive capabilities in MENA countries are relatively weak. Second, most FDIs to oil and non-oil-producing countries are low-quality FDI, which flows to extractive and natural resource-based sectors.

FDI Spillovers, Efficiency Change and Host Country Labor Productivity: Evidence from GCC Countries

This study contributes to the empirical literature by investigating the hypothesis that foreign direct investment (FDI) inflows yield positive productivity spillovers to Gulf Cooperation Council (GCC) countries during the period 1995-2011. Using Blundell–Bond dynamic panel Generalized Method of Moments (GMM) estimators, the main finding of dynamic panel data regressions shows that FDI inflows yield weak and negative productivity spillovers to GCC countries through its own or its interaction with host country absorptive capacity. In addition, the empirical results show that efficiency change (movements toward or away from the frontier) and political stability are the main factors that affect labor productivity growth in GCC countries. These results are consistent with previous single-country studies on technology transfer to developing countries.

Foreign Direct Investment and Productivity Spillovers: Firm-Level Evidence From Chilean Industrial Sector

ABSTRACT Using firm-level panel data, this article examines whether spillovers from foreign direct investment (FDI) make a contribution to productivity growth in Chilean manufacturing firms. The main contribution of this work is to apply a methodology to estimate, in a consistent manner, the productivity impact of investment climate variables, such as FDI. With this aim, the spillover effects from FDI are analyzed using a stochastic frontier approach (SFA). Productivity growth is decomposed using a generalized Malmquist output-oriented index. The results show positive productivity spillovers from FDI; higher competition is associated with larger spillovers; and firms with high R&D effort gain more spillover benefits compared to those with less R&D effort.

Inter-industry Productivity Spillovers: An Analysis Using the 1989–1998 Brazilian Trade Liberalisation

A major obstacle in the estimation of inter-industry (vertical) productivity spillovers is the need of an exogenous productivity shock. In this article, I propose the use of trade policy changes as a large productivity shock, since the literature has found evidence that trade liberalisations increase industry-level productivity. To do so, I develop a new empirical methodology using spatial econometrics, and apply it to the large economy-wide shock represented by the 1989–1998 Brazilian trade liberalisation. My results indicate the existence of positive and substantial upstream productivity spillovers. Nevertheless, no evidence of downstream productivity spillovers is found.