Productivity spillovers from FDI and the role of domestic firm’s absorptive capacity in South Korean manufacturing industries

• Published in: Empirical economics Vol. 48; no. 2; pp. 807 - 827
• Main Author: Kim, Minjung
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01.03.2015; Springer Nature B.V
• Subjects: Absorptive capacity; Developing countries; Econometrics; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Expenditures; Exports; Finance; Foreign investment; Insurance; Knowledge; LDCs; Management; Managerial skills; Manufacturing; Productivity; Regression analysis; Statistical analysis; Statistics for Business; South Korea; Absorptive capacity; O1; O3; Foreign direct investment (FDI); Simultaneous quantile regression; Productivity spillovers; F2
• ISSN: 0377-7332; 1435-8921
• DOI: 10.1007/s00181-014-0804-z

This paper investigates productivity spillovers from foreign direct investment (FDI) and the absorptive capacity of domestic firms using the firm level data of South Korean manufacturing industries. This paper finds that the absorptive capacity has as a role in mitigating the negative spillovers from FDI by capturing additional positive spillovers from FDI. Thus, firms without any absorptive capacity suffer more from FDI than firms with absorptive capacity. However, when the endogeneity problems in absorptive capacity such as R&D and export activity variables are considered, the role of absorptive capacity becomes too insignificant to alleviate the negative spillovers from FDI. In addition, the results from simultaneous quantile regression indicate that the effect of R&D and export activity to absorb the additional spillovers is heterogeneous depending on the conditional productivity distribution.