Cross sectoral FDI spillovers and their impact on manufacturing productivity. Issue 4 (August 2018)

• Record Type: Journal Article
• Authors: Orlic, Edvard; Hashi, Iraj; Hisarciklilar, Mehtap
• Is Part Of: International business review. Volume 27:Issue 4(2018:Aug.)
• Page Start: 777
• Page End: 796
• Publication Date: 2018-08
• Subjects: C23 -- D24 -- F23 -- O14; FDI -- Services -- Vertical linkages -- Productivity spillovers; International business enterprises -- Periodicals; 338.8805
• DOI: 10.1016/j.ibusrev.2018.01.002
• Languages: English
• ISSNs: 0969-5931

Abstract

Highlights: We investigate the effect of spillovers from FDI in manufacturing and services on the productivity of domestic manufacturing firms. Backward spillovers in manufacturing and forward spillovers in services affect the productivity of domestic firms positively. Forward spillovers in manufacturing affect the productivity of domestic firms negatively in most countries. Demonstration effect is found to have a negative impact on the domestic firms' productivity. FDI spillovers from Knowledge Intensive Services to downstream manufacturing firms are larger than those of Less Knowledge Intensive Services. Abstract: This paper explores the relationship between FDI spillovers and productivity in manufacturing firms in five European transition countries. The novelty of our approach lies in exploring different mechanisms of horizontal spillovers and disentangling the impact of backward and forward vertical spillovers from services and manufacturing sectors. We rely on firm level data obtained from the Amadeus database and annual input-output tables. The results from dynamic panel model estimations reveal that local manufacturing firms benefit from the presence of foreign firms in upstream services, especially in the knowledge intensive services, and in downstream manufacturing sector. Demonstration effect is found to be negatively associated with domestic firms' productivity, while worker mobility and increased competition appear to be the main channels of horizontal knowledge diffusion. The firms' productivity is also influenced positively by human capital and intangible assets. Finally, we show that the direction and intensity of both vertical and horizontal spillovers depend on the absorptive capacity of domestic firms.