Abstract:Many countries strive to attract foreign direct investment (FDI) in the hope that knowledge brought by multinationals will spill over to domestic industries and increase their productivity. In contrast with earlier literature that failed to find positive intra-industry spillovers from FDI, this study focuses on effects operating across industries. The analysis, based on a firm-level panel data set from Lithuania, produces evidence consistent with positive productivity spillovers from FDI taking place through contacts between foreign affiliates and their local suppliers in upstream sectors. The data indicate that such spillovers are associated with projects with shared domestic and foreign ownership but not with fully owned foreign investments. There is no indication of spillovers occurring within the same industry or through domestic firms sourcing inputs from multinationals.

This study hypothesizes that the ownership structure in foreign investment projects affects the extent of vertical and horizontal spillovers from foreign direct investment (FDI) for two reasons. First, affiliates with joint domestic and foreign ownership may face lower costs of finding local suppliers of intermediates and thus may be more likely to engage in local sourcing than wholly owned foreign subsidiaries. This in turn may lead to higher productivity spillovers to local producers in the supplying sectors (vertical spillovers). Second, the fact that multinationals tend to transfer less sophisticated technologies to their partially owned affiliates than to wholly owned subsidiaries, combined with the better access to knowledge through the participation of the local shareholder in partially owned projects, may facilitate more knowledge absorption by local firms in the same sector (horizontal spillovers). The analysis based on a Romanian firm-level data set produces evidence consistent with these hypotheses. The results suggest that vertical spillovers are associated with projects with shared domestic and foreign ownership but not with fully owned foreign subsidiaries. They also indicate that the negative competition effect of FDI inflows is lower in the case of partially owned foreign investments as it is mitigated by larger knowledge dissipation within the sector.

Conventional explanations for the post‐1991 growth of India's manufacturing sector focus on goods trade liberalisation and industrial delicensing. We demonstrate the powerful contribution of a neglected factor: India's policy reforms in services. The link between these reforms and the productivity of manufacturing firms is examined using panel data for about 4,000 Indian firms for the period 1993–2005. We find that banking, telecommunications, insurance and transport reforms all had significant positive effects on the productivity of manufacturing firms. Services reforms benefited both foreign and locally owned manufacturing firms, but the effects on foreign firms tended to be stronger.

While there exists a sizeable literature documenting the importance of ethnic networks for international trade, little attention has been devoted to studying the effects of networks on foreign direct investment (FDI). The existence of ethnic networks may positively affect FDI by promoting information flows across international borders and by serving as a contract enforcement mechanism. This paper investigates the link between the presence of migrants in the United States and U.S. FDI in the migrants' countries of origin, taking into account the potential endogeneity concerns. The results suggest that US FDI abroad is positively correlated with the presence of migrants from the host country. The data further indicate that the relationship between FDI and migration is driven by the presence of migrants with a college education.