Spillovers Through Backward Linkages from Multinationals: Measurement Matters!

Salvador Barrios (), Holger Görg () and Eric Albert Strobl ()
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Holger Görg: Kiel Institute for the World Economy

No 4477, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: We argue that the measures of backward linkages used in recent papers on spillovers from multinational companies are potentially problematic, as they depend on a number of restrictive assumptions, namely that (i) multinationals use domestically produced inputs in the same proportion as imported inputs, (ii) multinationals have the same input sourcing behaviour as domestic firms, irrespective of their country of origin, and (iii) the demand for locally produced inputs by multinationals is proportional to their share of locally produced output. We discuss why these assumptions are likely to be violated in practice, and provide alternative measures that overcome these drawbacks. Our results, using plant level data for Ireland, show clearly that the choice of backward linkage measure and thus, the assumptions behind them, matters greatly in order to draw possible conclusions regarding the existence of FDI-related spillovers. Using the standard measure employed in the literature we fail to find robust evidence for spillovers through backward linkages. However, when we use alternative measures of backward linkages that relax assumptions (i)-(iii), we find robust evidence for positive FDI backward spillover effects.

Keywords: multinationals; backward spillovers; productivity spillovers (search for similar items in EconPapers)
JEL-codes: F23 L22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff
Date: 2009-10

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Related works:
Working Paper: Spillovers through backward linkages from multinationals: Measurement matters! (2009)
Working Paper: Spillovers through backward linkages from multinationals: Measurement matters! (2009)
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