Foreign Presence, Spillovers, and Productivity: Evidence from Ghana

Abstract

This paper investigates the effect of foreign presence on the productivity of manufacturing industries in Ghana, using firm level panel data. We examine both labor and total factor productivity (TFP), which we compute using the Levinsohn and Petrin (2003) methodology. We control for a number of observed factors as well as unobserved heterogeneity in several dimensions. We find robust evidence that the presence of foreign firms in a sector has a negative effect on domestically owned, but a positive effect on most foreign owned firms. Unlike in recent work on China, it does not appear that the negative level effect is compensated for by a positive growth effect, at least not in any reasonable time period. This finding underscores that care must be exercised in extrapolating results from one country to others. We find no evidence of any wage effects.

Foreign Direct Investment Spillovers and the Ghanaian Local Financial Environment

“…This is expected since foreign firms will generally have a longer track record, and they stand in a better position than the local firms to get access to the domestic funds. This is supported by findings from Frimpong and Oteng-Abayie [2], Asiedu [3] and Waldkirch and Ofosu [4]. Thus, though FDI can generally be seen to promote growth, contrary to this view, these studies among others have found that FDIs are always not beneficial to host countries 1 .…”

“…Asiedu [3] also concludes that the effect of FDIs through spillovers in areas of production, technology transfers and job creation have still not been realised. Similarly, Waldkirch and Ofosu [4] find a negative effect of the presence of FDI on domestically-owned firms in Ghana.…”

Foreign direct investment, black economic empowerment and labour productivity in South Africa

“…Typically, developing countries offer a range of incentives such as income tax rebates, import duty exemptions and infrastructure subsidies to attract foreign direct investment (Aitken and Harrison, 1999;Waldkirch and Ofosu, 2010). In addition to the direct benefits of an additional source of capital, the flow of foreign direct investment (FDI) is expected to yield benefits such as enhanced employment opportunities, foreign exchange, and arguably, most importantly, the prospect of acquiring new technology and other intangible knowledge, which may spill over to the host country and allow domestic firms to improve their performance (see Ramirez, 2006).…”

“…Foreign subsidiaries also exhibit a strong tendency to remit profits by manipulating prices, and the type and quantity of their international transactions are mostly kept within the boundaries of the firm (Waldkirch and Ofosu, 2010).…”

“…Beginning with the pioneering work of Caves (1974) this view has spawned a large empirical literature which attempts to identify whether the presence of foreign firms is associated with improved productivity of domestic firms. While a brief review of this literature is provided in the following section, for obvious reasons, very little is known about the effect of FDI on domestic firms in the African context (exceptions are Waldkirch andOfosu, 2010 andBwalya, 2006). Noting this gap, this paper draws on two-period (2003 and 2007) panel data from South Africa to analyse the effect of foreign direct investment on the labour productivity of domestic firms.…”