Spillovers Through Backward Linkages from Multinationals: Measurement Matters!

Salvador Barrios (), Holger Görg and Eric Strobl ()

No 4477, IZA Discussion Papers from Institute of Labor Economics (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: backward spillovers; productivity spillovers; multinationals (search for similar items in EconPapers)
JEL-codes: F23 L22 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-10
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - published in: European Economic Review, 2011, 55 (6), 862-875

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Related works:
Chapter: Spillovers through backward linkages from multinationals: Measurement matters! (2016)
Journal Article: Spillovers through backward linkages from multinationals: Measurement matters! (2011)
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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