Vertical Spillover Effects Research Articles

Research on Emission Reduction Decisions in Supply Chains Considering Vertical Spillover Effects and Low-Carbon Preferences

The growth in carbon emissions is increasingly exacerbating global warming. As the principal source of carbon emissions, companies can effectively enhance their emission reduction levels through the vertical spillover of emission reduction technologies to investigate the impact of vertical spillover rates, consumers’ low-carbon preference coefficients, emission reduction cost coefficients on optimal supply chain decisions, and profits in centralized and decentralized decision-making environments. Considering consumers’ preferences for low-carbon options, this paper constructs a Stackelberg game model under centralized and decentralized supply chain decision-making scenarios. It examines the effects of considering the vertical spillover effects of emission reduction versus not taking them into account. Using backward induction, this study optimizes the emission reduction levels of leading suppliers and manufacturers. The results indicate that an increase in consumers’ low-carbon preference levels and vertical spillover rate not only enhances the emission reduction levels of suppliers and manufacturers but also increases their profits. Conversely, an increase in emission reduction cost coefficients impedes emission reductions, with a more pronounced effect under vertical spillover conditions. In centralized decision-making, increases in vertical spillover rates, consumers’ low-carbon preferences, and decreases in emission reduction cost coefficients create a synergistic effect, resulting in greater increases in emission reduction levels and profits for suppliers and manufacturers compared to the sum of the effects of changes in individual coefficients. This finding provides new insights for governments in formulating relevant policies to promote corporate emission reductions.

The productivity spillover effect of foreign divestment: Evidence from Chinese industrial enterprises

Foreign divestment in China is garnering increasing social attention. This study investigates the productivity spillover effects of foreign divestment based on Chinese industrial enterprise data from 2000 to 2007. Our findings indicate that foreign divestment negatively impacts the total factor productivity (TFP) of incumbent enterprises, especially through backward linkages. We examine potential mechanisms based on the characteristics of divested and incumbent enterprises. The closure of foreign-invested enterprise disrupts industrial connections, whereas the sale of foreign equity to domestic shareholders strengthens local industrial linkages, thus presenting an opposite effect. Hong Kong, Macau, and Taiwan (HMT)-invested enterprises tend to local sourcing, leading to divestment effects through backward linkages. Conversely, non-HMT enterprises, with a higher capability to provide differentiated intermediate goods, primarily exhibit forward linkage effects. Further analysis reveals that incumbent enterprises with lower technological capabilities are more dependent on their foreign suppliers and customers. Domestic non-state-owned enterprises and those in regions with lower economic development or marketization levels also have less stable input-output relationships. As a result, these enterprises are more susceptible to the vertical spillover effects of foreign divestment.

Do MNEs Create Spillover Effects in Cuba?

In the past three decades, Cuba has extended opportunities for Multinational Enterprises (MNEs) to establish operations within its predominantly centrally planned economy. Many MNEs have seized this opportunity and established their presence in Cuba, resulting in FDI inflows reaching up to 2 per cent of GDP in certain years. In our paper, we aim to assess the impact of MNEs’ activity on local companies, with a specific focus on productivity spillover effects. Additionally, we analyze how institutional factors influence the strength of these effects. Our data collection involved conducting questionnaires and semi-structured interviews with MNEs operating in Cuba and experts on the Cuban economy. Our findings reveal that MNEs introduce new technology and knowledge to Cuba, thereby positively influencing the local development. We have confirmed the existence of vertical spillover effects, as certain MNEs provide direct assistance to local companies with whom they collaborate. The extent of these spillover effects is heavily contingent on Cuba’s institutional framework. Local regulations mandate that MNEs cooperate with local companies for various operations, such as expanding product distribution across the country, thus amplifying the impact. Conversely, spillover effects through labor mobility are limited, as there is a low rate of transition from MNEs to local companies among the local workforce. Stringent legal constraints further hinder interaction between MNEs and the Cuban private sector, thereby limiting the broader spillover effects.

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.

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.

The Multi-Level Nature of Psychological Ownership: Exploring its Antecedents and Consequences

Scholars emphasize the importance of psychological ownership (i.e., a feeling of possession towards an object independent of legal ownership) for desired behaviors and attitudes in corporate contexts. Psychological ownership is a multi-level phenomenon, meaning that the emotional attachment it implies might pertain to the overall organization as well as to organizational sub-units (e.g. business units). Hitherto, however, there is little empirical evidence on the antecedents, consequences, and vertical spillover effects of psychological ownership. To address this research gap, our paper presents arguments explaining how psychological ownership positively affects organizational performance by diffusing from higher levels of the organization towards lower levels. Furthermore, we suggest that error management culture and high affective commitment within teams, constitutes environmental conditions that let psychological ownership thrive. To test our theorizing, we created a unique dataset combining archival data with two surveys among 1,536 employees and 66 managers of an organization. Our results indicate that psychological ownership towards the business unit indeed enhances performance and mediates the effect of psychological ownership towards the entire organization. Additionally, our findings suggest that error management culture and the increase of affective commitment in teams pose mechanisms that can enhance psychological ownership towards the business unit. With these findings, our study yields important theoretical and practical implications.

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.

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

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

Export spillover from foreign direct investment in China during pre- and post-WTO accession

This study investigates the effects of export spillover from foreign direct investment (FDI) before and after China’s World Trade Organization (WTO) accession, with particular consideration of the FDI source country and firm ownership structure. It uses a Chinese manufacturing firm-level panel dataset, for the period 1998–2007. In general, there are no spillover effects among state-owned enterprises (SOEs). This study finds negative horizontal and positive vertical spillovers associated with FDI from Hong Kong, Macao, and Taiwan (HMT) among non-SOEs. Furthermore, non-HMT FDI, which is predominantly from the Organisation for Economic Co-operation and Development (OECD) countries, have statistically significant positive horizontal and vertical spillover effects on the export performance of private Chinese firms. Positive forward spillovers occurred only after China joined the WTO, while positive backward spillovers existed during both the pre- and post-WTO periods. China’s entry into the WTO intensified the forward linkage of production, implying that greater availability of high-quality inputs produced by non-HMT foreign multinationals benefited the export performance of private domestic firms.

REASONS AND DIRECTIONS OF THE INFLUENCE OF FOREIGN DIRECT INVESTMENTS ON THE ECONOMY OF THE RECIPIENT COUNTRY

The article reveals the essence of the investment climate, the quantitative and qualitative parameters of which form the conditions of attractiveness / unattractiveness of the national economy for internal and external investors. We have summarized the motives of exporters and importers of capital, which are represented by the desire of investors to place capital in a particular country or industry, where it will ensure maximum profit, minimize costs and diversify risks. Also, we have examined the main and indirect effects of foreign direct investment. The authors described indirect horizontal and vertical spillover effects, among which are “the demonstration effect”, “the effect of competition” and “the effect of overflow of knowledge on the labor market”. Finally, we have identified the positive and negative consequences of attracting foreign direct investment in the economy of the recipient country on the economic, monetary, technological, social, and environmental areas. Also, we have emphasized that the identified advantages and disadvantages of attracting FDI into the economy of the recipient country are possible in theoretical terms, but are not automatically realized. Each country should evaluate its own internal socio-economic situation, the feasibility of attracting FDI and regulate them in order to maximize benefits and minimize the possible negative impact of the international investment process.

Technological spillover through industrial and regional linkages: Firm-level evidence from China

This paper provides new insights into the study of technology spillover effects through the interaction between industrial and spatial linkages. We develop a theoretical model that provides a useful modeling framework for spillover research, and then empirically test the model inferences using Chinese firm-level data. Input-output tables and spatial decay measurements are combined to construct the key spillover variables. Using seemingly unrelated regressions, the paper finds that vertical spillover effects are more significant than horizontal spillover effects, both within- and between-regions; regional characteristics have greater impacts on vertical spillovers than on horizontal spillovers; and regional spillover effects vary across different regions. Regional policies and regional endowments, including human capital, transportation infrastructure, and enterprise ownership, are crucial in explaining these heterogeneities in regional technology spillover. Our empirical results provide many policy implications including strengthening the connection between upstream and downstream industries and devoting more R&D to upstream industries.

Structural change and agglomeration in the Hungarian pork industry

ABSTRACT The paper analyses agglomeration effects and spatial externalities in the Hungarian hog sector between 2000 and 2010. We apply a spatial lag-spatial error regression model to capture horizontal and vertical spillover effects and to understand the environmental restrictions that determine the location of pork production at the municipality level. Due to the dual nature of the structure of the Hungarian pork industry, we investigate agglomeration effects for individual and corporate farms separately. Results indicate that pork production by these farm groups is affected by different factors in different ways. We distinguish two different ‘worlds’ within the Hungarian pork industry. The ‘introvert world’ of individual farms is very sensitive to agglomeration effects and spatial externalities. The ‘extrovert world’ of corporate farms is more resistant to agglomeration economies and spatial externalities.

The Spillover Effects of Venture Capital

The age of National Strategy of Innovation-Driven Development provides new development opportunities for venture capital in China. Venture capital, as the important carrier of enterprise innovation, on the one hand, is the principle source of initial funds for start-up enterprises; on the other hand, it can alleviate enterprise moral hazards and the problem of agencies with its unique resources and value-added services. In recent years, scholars mainly focus on the study of the characteristics of venture capital institutions and their roles in invested enterprises, and the externality of venture capital has been ignored. Therefore, for China’s real economy, whether venture capital can contribute to positive spillover effects or not, venture capital plays the role through what channels, and is affected by which internal mechanism, all of these questions need to be researched and answered. Based on the condition that venture capital can effectively alleviate the enterprise agency problem, this paper links the mechanism of knowledge spillovers and the spillover effects of foreign direct investment, and summarizes four channels to the spillover effects of venture capital—the technology innovation, talent cultivation, scientific competitiveness and technological diffusion. According to these channels, we construct three spillover variables: horizontal, forward and backward spillovers, and make an empirical research on the spillover effects of venture capital with the data of Chinese listed companies from 2008 to 2015. What’s more, we try to explore the internal mechanism which restricts the venture capital spillover effects. The result of the empirical research shows that venture capital has significant vertical spillover effects under the three methods of estimation. It performs as that venture capital can promote the development of both upstream suppliers and downstream distributors, making higher total factor productivity. The paper fails to discover the horizontal spillover effects of venture capital. Further studying finds that the absorptive capacity of enterprises and the degree of the competition within industry play significant roles in the horizontal spillover. The technical threshold restricts intra-industry enterprises to absorb new knowledge, and then inhibits the horizontal spillover effects of venture capital. Moreover, intense competition may force companies with outdated technology in the same industry face elimination risks and also weaken the horizontal spillover of venture capital. It seems that the monopoly market structure is more conducive to knowledge spillovers, reflecting the MAR externalities. However, the competition is not the only one side. As Jacobs externalities theory says that intense competition optimizes the market structure and improves the cooperation, which is beneficial to the raise of vertical spillovers. The contributions may lie in the following three aspects: in terms of theory, the paper studies the venture capital spillover effects on the intra-industry and inter-industry, and offers a brand-new thought for the venture capital related research. In research methods, the paper uses three methods to estimate total factor productivity with the micro panel data, effectively alleviating the endogenous problem when estimating total factor productivity, and eliminating the interference of other invisible factors by combining the two-stage estimation method. In practice aspect, innovation entrepreneurship is the main melody of the present economic development in China, so venture capital plays an important role in encouraging innovation and stimulating entrepreneurship. Based on the analysis of channels of the venture capital spillover and the related affecting factors, this paper also finds three key factors of giving full play to the venture capital spillover effects—to promote enterprise innovation and cooperation, to maintain the vitality of the competitive market, and to ensure the healthy development of the talent market.

FDI Spill-Overs, Absorptive Capacity and Domestic Firms' Technical Efficiency in Vietnamese Wearing Apparel Industry

This study empirically examines relationship between FDI spill-overs and technical efficiency of domestic firms and role of the absorptive capacity of domestic firms. Data on Vietnamese Annual Enterprises Survey are exploited to build a firm-level panel data on the Vietnamese wearing apparel industry from 2009 to 2013. By applying stochastic production frontier model, this paper shows that there are positive vertical spill-over effects but no horizontal effects. Moreover, this study finds the negative impact of the absorptive capacity of domestic firms on benefits reaped from FDI externalities.

Impact of foreign direct investments on Serbian industry

The empirical researches to date on the impact of foreign direct investments (FDI) on the host country were either focused on the overall macroeconomic impact of FDI on exports of the host country or have analyzed the direct contribution of foreign affiliations or looked for spillover effects. By using a mixed model, the method of least squares (OLS) with fixed effects, in the paper has been proved that FDI had a positive effect on the growth of Serbian exports. FDI led to productivity growth in a large number of companies in the economy. At the same time the research conducted at the company level indicates the existence of horizontal and vertical spillover effects. FDI through vertical spillover effects had a positive effect on major suppliers while have led to significant displacement from the market of main competitors.

Spillover Effects of The Russian Economy: Regional Specificity

The purpose of the study is to evaluate the strength and direction of the distribution of the foreign direct investments (FDI) in regional economy. The subject matter of the research is FDI to the regions of Russia. The subject of the study is relevant as it makes possible to estimate the long-term consequences from the restrictions of the West countries (in connection with sanctions) against the inflow of the foreign capital to the regions of the Russian Federation. The study is based on the following hypotheses: 1. Russian regional economy has horizontal (distribution of effects from FDI within an industry) and vertical spillover effects (distribution according to a technological chain, from product suppliers to product consumers). Vertical effects are more important and have greater amplitude than horizontal effects. An industry competition is one of the causes of negative horizontal spillover effect, and the scale of the company is the reason of positive horizontal spillover effect. 2. FDI generates the positive regional spillover effects on the productivity of domestic firms in the Russian economy. 3. Regional industry specificity influences the sign and magnitude of spillovers from FDI. 4. Time sensitivity is revealed for horizontal spillovers, so the regional effects may change the direction. As an empirical basis of the study, the statements of 23567 Russian companies with FDI and 25354 Russian enterprises without FDI for the 5 years were used. The methodology of the research is the calculation of spillover effects, Cobb-Douglas production function and panel data regression. The study has found, that the direct vertical spillover effects are almost absent. That means that industrial consumers do not notice the effect of inward FDI. At the same time, the converse effect related to the product suppliers is positive, but as the direct effect, it is not more important in any group of regions then the horizontal effect. The Russian economy has a positive regional spillover effect of FDI. The positive effect of FDI for a region of investment attractiveness, first of all, extends to regions with similar investment climate, and after that residually extends to less successful regions. The regional spillover effect is unstable and has high volatility. Therefore, regional administration has to develop the anti-crisis policy and try to improve the investment climate. The findings of the study may be useful for the regional authorities to formulate the investment policy.

FDI productivity spillovers and the technology gap in Malaysia's electrical and electronic industries

This study measures the impact of indirect technology transfer through spillovers from foreign direct investment (FDI) on Malaysia's development of a ‘high‐tech’ sector, namely the electrical and electronic (E&E) industries. We estimate the total factor productivity (TFP) of establishments as a function of foreign presence within and across industries. Both the fixed assets and wages share of foreign establishments in a five‐digit ISIC (International Standard Industrial Classification) industry are used as measures of foreign presence. The estimations provide evidence of significantly negative (or insignificant) FDI vertical spillover effects and insignificant horizontal spillover effects on the TFP of domestic establishments. The positive (negative) coefficient of the interaction term between the forward (horizontal) spillover variable and the technology gap supports the ‘catching‐up’ (technology accumulation) hypothesis. The negative impact, even absence, of FDI spillover effects on TFP and the mixed evidence on the effects of interactions between FDI spillovers and the technology gap suggest that fine‐tuning of fiscal incentive schemes for FDI to arrive at positive net benefits may prove to be a daunting task in the Malaysian E&E industries.

Assessing horizontal and Vertical Spillover Effects from Foreign Direct Investment in Russia

FDI is believed to be very helpful for the national economy’s development. It is expected to increase the profitability and productivity of domestic companies. The analysis of balance sheets of Russian enterprises shows that for the period2004-2012 foreign investment caused horizontal and vertical spillovers in economic sectors. But this impact is ambiguous. Econometric modeling establishes the significant positive role of backward spillover. This means that national suppliers gain benefits from international interaction and become more effective due to technological and knowledge inflow from abroad.

FDI and Efficiency Convergence, the Case of Vietnamese Manufacturing Industry

Aims: The scope of this study is twofold. We aim to test efficiency convergence hypothesis among firms in Vietnamese manufacturing industry, and to analyze the influence of foreign direct investment (FDI) on efficiency and efficiency convergence. Study Design: Case study Place and Duration of Study: Technical efficiency measures are derived for a sample of Vietnamese manufacturing firms during 2000-2012 Methodology: nonparametric data envelopment analysis (DEA). The approach to find the impacts of FDI on efficiency and efficiency convergence through horizontal and vertical spillover effects is to construct the linkages from dynamic input - output tables. The way to test unconditional convergence in the two technical efficiency measures from DEA is used the regression in the form

Vertical Spillover Effects of Multinationals on Chinese Domestic Firms via Supplier–Customer Relationships

AbstractForeign direct investment (FDI) can benefit domestic firms in the host country. Using firm‐level data for China, we find statistically positive vertical spillover effects of multinational enterprises on the performance of domestic firms through backward and forward supplier–customer relationships. The spillover effects are mainly from large multinational enterprises and are greater for state‐owned firms and in poor regions. Our results are robust for both parametric regression and nonparametric matching techniques. Our findings have strong policy implications: while regulations relating to building business relationships with domestic firms when seeking foreign direct investment should be established, such policies should be aimed at private firms, big multinationals and less developed regions.