Domestic Plant Productivity and Incremental Spillovers from Foreign Direct Investment

Carlo Altomonte () and Enrico Pennings ()

No ERS-2009-012-STR Revision_Date: 2009-07-29, Research Paper from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

Abstract: 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’ TFP 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 service, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.

Keywords: transition economies; productivity; multinational firms (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-eff and nep-tra
Date: 2009-03-10

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Journal Article: Domestic plant productivity and incremental spillovers from foreign direct investment (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:eureri:1765015143

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