DO DOMESTIC FIRMS REALLY BENEFIT FROM FOREIGN DIRECT INVESTMENT? THE ROLE OF HORIZONTAL AND VERTICAL SPILLOVERS AND ABSORPTIVE CAPACITY

Smruti Ranjan Behera ()
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Smruti Ranjan Behera: Indian Institute of Technology Ropar, India

Journal of Economic Development, 2015, vol. 40, issue 2, 57-86

Abstract: This paper examines whether the existence of externalities associated with foreign direct investment (FDI) benefits the domestic firms of Indian manufacturing industries. Empirical findings reveal that local firms benefit from vertical foreign presence, whereas the horizontal foreign presence at the industry level could not substantially raise the value addition of labor across Indian industries. The absorptive capacity of domestic firms is highly relevant to reap the benefit from foreign presence, and could act as a precondition for incorporating the benefit of FDI externalities. Higher concentration and a greater size of the domestic market facilitate to raise the productivity spillovers from foreign presence. Furthermore, the FDI-technology spillovers seem to be higher for R&D-and technology-intensive firms.

Keywords: Foreign Direct Investment; Technology Spillover; Manufacturing; Panel Cointegration; Unit Root Test (search for similar items in EconPapers)
JEL-codes: C22 C23 E23 F43 O41 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:jed:journl:v:40:y:2015:i:2:p:57-86

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