FDI Spillovers and their Interrelationships with Trade

Molly Lesher and Sébastien Miroudot
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Molly Lesher: OECD

No 80, OECD Trade Policy Papers from OECD Publishing

Abstract: Foreign direct investment (FDI) represents an increasingly important dimension of international economic integration with global FDI flows growing faster than output over the past two decades. FDI is a particular form of investment, as it transfers knowledge as well as finance that may otherwise be unavailable in the domestic economy. This paper uses firm-level data to identify FDI spillovers across countries, sectors and time. The analysis suggests that knowledge-related spillovers from FDI vary considerably across sectors. Services industries enjoy the strongest productivity-enhancing effects of FDI, particularly through backward linkages. There is no strong evidence of horizontal productivity spillovers at the aggregate level. The results also indicate a significant and positive correlation between the degree of trade openness and output when measuring the impact of foreign presence in the domestic economy. A positive interaction is found between trade liberalisation and productivity spillovers. Thus, trade liberalisation can be seen as an important component of any reform package designed to help countries maximise the benefits of FDI.

Keywords: backward linkage; FDI; forward linkage; IAS 19; investment; micro data; services; spillovers; technology; trade liberalisation; trade openness (search for similar items in EconPapers)
Date: 2008-10-07
New Economics Papers: this item is included in nep-eff and nep-int
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Citations: View citations in EconPapers (29)

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