Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela

Abstract

Governments often promote inward foreign investment to encourage technology 'spillovers' from foreign to domestic firms. Using panel data on Venezuelan plants, the authors find that foreign equity participation is positively correlated with plant productivity (the 'own-plant' effect), but this relationship is only robust for small enterprises. They then test for spillovers from joint ventures to plants with no foreign investment. Foreign investment negatively affects the productivity of domestically owned plants. The net impact of foreign investment, taking into account these two offsetting effects, is quite small. The gains from foreign investment appear to be entirely captured by joint ventures.

Foreign Direct Investment and Local Economic Development: Beyond Productivity Spillovers

“…As Aitken and Harrison (1999) argue, multinationals producing at lower marginal costs than host country firms have an incentive to increase output and attract demand away from these firms. This will cause host country rivals to cut production which, if they face fixed costs of production, will raise their average cost.…”

Large Foreign Ownership and Firm-Level Stock Return Volatility in Emerging Markets

“…3 See Blomström and Kokko (1998) for a literature review on the externalities associated with FDI and Aitken and Harrison (1999) for firm-level evidence of the positive impact of FDI on foreign-owned operations.…”

Managing FDI technology spillovers: A challenge to TNCs in emerging markets

“…Empirical studies have so far produced mixed results. Some studies showed evidence of positive technology spillovers from FDI to local firms, while other studies found that FDI negatively affects the productivity of local firms (see, for instance, Caves, 1974;Globerman, 1979;Kokko;Blomstrom and Wolff, 1996;Aitken and Harrison, 1999;Djankov and Hoekman, 2000;Kathuria, 2000;Chung, 2001;Chuang, Mitchell and Yeung, 2003;Javorcik, 2004;Wei and Liu 2006;Tian 2007;Buckley, Clegg and Wang 2007). 2 Interestingly enough, both sides in the debate have looked at the issue almost exclusively from the perspective of local firms that receive the spillovers rather than the perspective of TNCs that generate the spillovers.…”