Learning or leaning: persistent and transitory growth spillovers from FDI

Ronald Davies, Michael Lamla and Marc Tobias Schiffbauer

No 7591, Policy Research Working Paper Series from The World Bank

Abstract: Using firm-level data for Jordan, the paper estimates the extent to which growth spillovers from foreign direct investment (FDI) to local firms stem from persistent learning externalities (i.e., they endure even after foreign investment leaves as knowledge has been transferred to local firms) or from transitory effects (e.g., demand increases that evaporate following disinvestment). The paper find that spillovers have a significant transitory nature, with employment and capital growth declining when FDI falls, particularly in downstream industries supplied by locals. This suggests that if FDI-attracting policies are intended to promote sustainable growth, it may be more effective to attract and retain FDI via long-term structural policies, for instance, through low corporate tax rates rather than temporary tax holidays or through policies that strengthen the domestic absorptive capacity and linkages between foreign and local firms.

Keywords: Technology Innovation; International Trade and Trade Rules; Technology Industry; Economic Policy; Institutions and Governance (search for similar items in EconPapers)
Date: 2016-03-02
New Economics Papers: this item is included in nep-fdg and nep-int
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:7591

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