How Does FDI Affect Productivity at Home?: Evidence from a Plant-Level Analysis

Abstract

This study investigates the effect of foreign direct investments (FDI) on home productivity using plant-level data rather than firm-level data. Our results are consistent with the theoretical predictions. Horizontal FDI (HFDI) does not have a significantly positive effect on home productivity in plants that have the same activities abroad. In contrast, vertical FDI (VFDI) significantly enhances productivity in plants with an input-output relationship with activities relocated abroad. Furthermore, focusing on FDI in East Asia, the productivity improvements at home through VFDI are even greater, which might be caused by significant differences in factor prices between Japan and host countries.

Outward Foreign Direct Investment, Restructuring and Performance Upgrading: Firm-level Evidence from Portugal

“…Nonetheless, some empirical findings suggest that there are positive learning effects that provide performance upgrading at home. Navaretti and Castellani (2004) and Imbriani et al (2011) for Italian manufacturing firms, Wei et al (2010) for Chinese firms, Ito (2015) and Hayakawa et al (2016) for Japanese firms Hijzen et al (2011) for French firms, among others, claim positive impact of outward FDI on parent firms productivity. However, other works analysing the learning effect in investing abroad fail in detecting a positive and significant causal effect (see, for instance, Hijzen et al, 2007) for manufacturing firms.…”