Which Firms Benefit More From Inward Foreign Direct Investment?

Priit Vahter ()

No 2005-11, Bank of Estonia Working Papers from Bank of Estonia

Abstract: In the study of the effects of foreign direct investment (FDI) on host countries, an interesting question that is highly relevant to government policy concerning FDI is whether the benefits of inward FDI both as \"own-firm\" effects of FDI in foreign subsidiaries and positive spillover effects for other firms are captured to a larger extent by certain types of enterprises in the host economy? Are there particular characteristics (often called absorptive capacity, e.g. by Cohen, Levinthal 1989) that determine whether a firm can benefit from positive spillovers? In this paper I will try to assess these issues based on enterprise level panel data from Estonia. I find that for the total factor productivity effects of FDI at the subsidiary level, characteristics such as export or domestic market orientation of the affiliate may be important. I do not find that selected indicators such as exporting, R&D activity or intensity of technology in the sector are important for benefiting from horizontal spillovers of FDI in Estonia.

Keywords: foreign direct investment; productivity; spillovers; absorptive capacity (search for similar items in EconPapers)
JEL-codes: F10 F21 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino
Date: 2005-10-10, Revised 2005-10-10
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