The Role of FDI in Eastern Europe and New Independent States: New Channels for the Spillover Effect
Irina Tytell and
Ksenia Yudaeva
Additional contact information
Ksenia Yudaeva: New Economic School/CEFIR
No w0060, Working Papers from Center for Economic and Financial Research (CEFIR)
Abstract:
Policymakers around the world introduce special policies aimed at attracting foreign direct investments (FDI). They motivate their decision by the spillover effect, which FDI have on domestic companies. Empirical literature so far has failed to find any robust evidence of this effect. In this paper, we make an attempt to explain this finding. Using data from Poland, Romania, Russia, and Ukraine, we demonstrate that not all FDI have positive spillover effects on domestic firms. Spillovers are positive only in the case of export-oriented FDI and, more generally, are driven by the more productive foreign companies. Moreover, effects of FDI on domestic firms are not limited to knowledge spillovers: exposure to foreign technologies alters the form of their production functions. Specifically, foreign entry is associated with higher capital intensity and lower labor intensity of domestic firms in relatively more developed countries, such as Poland, while the opposite is the case in the less developed countries, such as Russia. These results are subject to threshold effects: benefits are more likely to materialize once a relatively large stock of foreign capital is accumulated. Absorptive capacity of domestic firms plays a crucial role in reaping the benefits of FDI. Both, knowledge spillovers and production function changes, occur predominantly in the more educated and the less corrupt regions.
Pages: 35 pages
Date: 2005-12
New Economics Papers: this item is included in nep-cis, nep-eec and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)
Downloads: (external link)
http://www.cefir.ru/papers/WP60FDI.pdf (application/pdf)
Related works:
Working Paper: The Role of FDI in Eastern Europe and New Independent States: New Channels for the Spillover Effect (2006) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cfr:cefirw:w0060
Access Statistics for this paper
More papers in Working Papers from Center for Economic and Financial Research (CEFIR) Contact information at EDIRC.
Bibliographic data for series maintained by Julia Babich (juliababich@gmail.com).