Does FDI benefit incumbent SMEs?

Abstract

That global networks provide positive externalities to participating firms is a well-documented fact. Less is known about how the performance of non-participating firms, especially those that are small or medium-sized, changes with exposure to an increase in the presence of globally integrated firms in their vicinity. With global trade being dominated by large firms, the benefits for SMEs are often indirect, e.g. through input relationships with larger companies or through knowledge spillovers that facilitate the adoption of best practices in firms with access to globally integrated peers. This paper combines industry and regional exposure to global links in form of foreign ownership. It uses firm-level microdata for 13 OECD countries, allowing for local spillovers (or crowding out) within the same industry and across industries. Foreign investment in the firm in the same region is associated with increasing productivity of local firms, especially in form of cross-sector externalities. Horizontal (same sector) externalities are negative, especially if they are coming from foreign firms locating in distanced regions. FDI tends to be associated with employment decline in manufacturing firms, but some growth in small firms.

Regions and globalisation

“…These include: mountain territories in Auvergne-Rhône-Alpes and Corsica, rural 50 Some regions have made this an objective: for example, Martinique plans to produce a single document, the Land Use and Sustainable Development Plan (PADDMA), of which the SRDEII would form the economic component. 51 According to Lembcke and Wildnerova (2020), while FDI allows businesses and their local ecosystem to integrate into global value chains through a spillover effect, it has a very limited positive effect on employment in SMEs, and may even have a negative effect for regional SMEs.…”

“…One counterargument could be that, in parallel to all these shortcomings and disadvantages, internationalisation can have positive local spill over effects (Lembcke and Wildnerova, 2020) 8 in terms of skills and innovation, improve the employment situation, provide access to key resources, infrastructure and services, and lead to better territorial distribution of economic activity by avoiding, for example, the 6 OECD member countries highlighted these megatrends during the fourth Ministerial Meeting of the Regional Development Policy Committee in Athens, in March 2019. 7 The inter-communal territories (Public Establishment for Intercommunal Cooperation -EPCI), which are responsible for economic development, are also involved in diagnostic studies to assess their economic base's degree of dependency through purchase mapping.…”

“…8 Lembcke and Wildnerova (2020) show that local small and medium-sized enterprises (SMEs) benefit more in terms of productivity from foreign direct investment in their region when this involves an industry segment that differs from their own. industrial overconcentration that some French regions experienced in the twentieth century, with all the associated disadvantages for the environment and quality of life (OECD, 2020f).…”

Les régions dans la mondialisation

“…Un premier niveau de réponse pourrait être qu'en parallèle à tous ces défauts et tous ces inconvénients, l'internationalisation peut induire des retombées locales positives (Lembcke et Wildnerova, 2020 ;OCDE, 2020) (OCDE, 2021). Cette tendance pourrait remettre en cause l'intérêt à l'agglomération des fonctions clés en centre urbain si la volonté des cadres de se relocaliser dans des conditions plus avantageuses (en coût, en espace et en qualité de l'environnement) perdurait au-delà de la crise (OCDE, 2021).…”

“…d'une part et, d'autre part, que51 SelonLembcke et Wildnerova (2020), si les investissements directs étrangers permettent d'insérer les entreprises et leur écosystème « local » dans les chaines de valeur mondiales par un effet de « spill-over » [de simple ruisselement] , ils n'ont qu'un effet positif que très limité sur les gains en matière d'emploi dans les PME, voire négatifs pour les PME « régionales ».…”