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Productivity and Trade Spillovers: Horizontal Crowding-Out Versus Vertical Synergies in Europe as a Response to Foreign Direct Investment

Jan Hanousek (), Evžen Kočenda () and Pavla Vozarova

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We analyze the impact of multinational enterprises (MNEs), via their foreign direct investment (FDI), on domestic firms in 30 European host economies, from 2001 to 2013. We incorporate international industrial and trade linkages into a standard theoretical framework and test them empirically on a unique dataset compiled from the Amadeus, Eurostat, UN Comtrade and BACI data sources. While controlling for horizontal, vertical, and export channels at the upstream and downstream levels, we show that the presence of MNEs significantly affects domestic firms, in terms of both changing the market structure and improving productivity. The impact is not always positive, as domestic firms are often crowded-out. However, those firms that withstand such double competition receive additional benefits stemming from trade (export) spillovers. In our complex model, we did not find significant (positive) interactions of domestic firms with horizontal MNEs which would suggest desirable productivity spillovers.

Keywords: multinational enterprise (MNE); foreign direct investment (FDI); European firms; spillovers; international trade (search for similar items in EconPapers)
JEL-codes: C33 F15 F21 F23 O24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse and nep-int
Date: 2017-08
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Related works:
Working Paper: Productivity and trade spillovers: Horizontal crowding-out versus vertical synergies in Europe as a response to the Foreign Direct Investment (2017) Downloads
Working Paper: HORIZONTAL CROWDING-OUT VERSUS VERTICAL SYNERGIES UNDER THE MNE PRESENCE (2017) Downloads
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