FDI Spillovers and Time since Foreign Entry

This study investigates the effect of foreign direct investment (FDI) on the productivity of local firms. In contrast to existing literature our empirical approach does not require FDI to have immediate or permanent effects. We find that foreign entry initially negatively affects local competitors’...

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Bibliographic Details
Published inWorld development Vol. 56; pp. 108 - 126
Main Authors Merlevede, Bruno, Schoors, Koen, Spatareanu, Mariana
Format Journal Article
LanguageEnglish
Published Oxford Elsevier Ltd 01.04.2014
Pergamon Press Inc
Subjects
Competitive advantage
dynamics
FDI
Foreign investment
Market entry
Productivity
spillovers
Studies
timing
dynamics
FDI
spillovers
timing
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Summary:This study investigates the effect of foreign direct investment (FDI) on the productivity of local firms. In contrast to existing literature our empirical approach does not require FDI to have immediate or permanent effects. We find that foreign entry initially negatively affects local competitors’ productivity, followed by a positive permanent effect from majority foreign owned firms present for longer time. The effect on the productivity of local suppliers, in contrast, is transient. Majority foreign owned firms boost local suppliers’ productivity a few years after entry, then the effect fades out. Minority foreign owned firms have similar but smaller effect.
ISSN:0305-750X
1873-5991
DOI:10.1016/j.worlddev.2013.10.022