Estimating Direct and Indirect Effects of Foreign Direct Investment on Firm Productivity in the Presence of Interactions between Firms

Sourafel Girma, Yundan Gong (), Holger Görg and Sandra Lancheros ()
Additional contact information
Yundan Gong: Aston University
Sandra Lancheros: University of Nottingham

No 8509, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We implement a method to estimate the direct effects of foreign-ownership on foreign firms' productivity and the indirect effects (or spillovers) from the presence of foreign-owned firms on other foreign and domestic firms' productivity in a unifying framework, taking interactions between firms into account. To do so, we relax a fundamental assumption made in empirical studies examining a direct causal effect of foreign ownership on firm productivity, namely that of no interactions between firms. Based on our approach, we are able to combine direct and indirect effects of foreign ownership and calculate the total effect of foreign firms on local productivity. Our results show that all these effects vary with the level of foreign presence within a cluster, an important finding for the academic literature and policy debate on the benefits of attracting foreign owned firms.

Keywords: foreign direct investment; SUTVA; propensity score matching; interactions (search for similar items in EconPapers)
JEL-codes: F23 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-09
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eff and nep-ifn
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Citations: View citations in EconPapers (6)

Published - published in: Journal of International Economics, 2015, 95 (1), 157-169

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Related works:
Chapter: Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms (2016)
Journal Article: Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms (2015)
Working Paper: Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms (2014)
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