Journal article
Firm heterogeneity and FDI-related productivity spillovers: A theoretical investigation
Journal of International Trade & Economic Development, Vol.28(1), pp.1-10
2019
Abstract
A number of existing empirical studies have attempted to estimate the foreign direct investment (FDI)-related productivity spillover effects to domestic firms in host economies using various methodologies and measures of FDI. This literature has produced mixed results. While some studies found positive spillovers, others reported zero or even negative spillovers. In this paper, using a model of firm heterogeneity, we provide a rigorous theoretical justification for the mixed findings. We show that FDI-related productivity spillover effects can be decomposed into a direct and an indirect effect. If the direct effect is positive then relatively less capable domestic firms that were not able to survive in the industry (before the arrival of foreign firms) can enter the industry, which decreases the average (expected) productivity of the industry. If this indirect effect is sufficiently strong then the overall impact of FDI on productivity of domestic firms can be zero or negative. Hence, irrespective of the type of FDI (vertical or horizontal) and control variables included in empirical models, one may find negative or zero spillover effects.
Details
- Title
- Firm heterogeneity and FDI-related productivity spillovers: A theoretical investigation
- Authors
- Sajid Anwar (Author) - University of the Sunshine Coast - Faculty of Arts, Business and LawSizhong Sun (Author) - James Cook University
- Publication details
- Journal of International Trade & Economic Development, Vol.28(1), pp.1-10
- Publisher
- Routledge
- Date published
- 2019
- DOI
- 10.1080/09638199.2018.1482947
- ISSN
- 0963-8199
- Organisation Unit
- School of Business and Creative Industries; Indigenous and Transcultural Research Centre; University of the Sunshine Coast, Queensland; USC Business School - Legacy
- Language
- English
- Record Identifier
- 99450658102621
- Output Type
- Journal article
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