Suppliers of multinationals and the forced linkage effect: Evidence from firm level data

Abstract

Abstract:Using information on more than 1000 firms in a number of emerging countries, we find quantitative evidence that suppliers of multinationals that are pressured by their customers to reduce production costs or develop new products have higher productivity growth than other firms, including other host country suppliers of multinationals. These findings provide first empirical support for a "forced linkage effect" from supplying multinational companies. Our findings hold controlling for other factors within and outside the supplier-customer relationship and when endogeneity concerns are taken into consideration.

New and Improved: Does FDI Boost Production Complexity in Host Countries?

“… According to the Business Environment and Enterprise Performance Survey conducted jointly by the World Bank and the European Bank for Reconstruction and Development in 25 transition countries, 41.8% of suppliers to MNEs received pressure from their customers to develop new products or services. The corresponding figure for non‐suppliers was only 36.8% (Godart and Görg, ). According to the same data source, the corresponding figures for the Turkish sample were 90% for domestic suppliers to MNEs and 80% for non‐suppliers. …”

Exploring the links between offshoring and innovation

“…A number of studies, discussed, inter alia, in Castellani and Zanfei (2006), Smeets (2008) and Gorodnichenko et al (2014), point out the role of technology gaps, absorptive capacity, mode of entry, nationality of the MNE, input and output linkages. The phenomenon of linkage creation and interactions among firms, has been addressed specifically in many contributions, in order to identify the channels through which such spillovers take place (Jindra et al 2009;Santangelo 2009;Godart and Görg 2013;Girma et al 2014), the role of market competition in easing or inhibiting linkage creation and, hence local spillovers (Santangelo 2012;Perri et al 2013), and the dynamics of cluster formation in the host economy that such linkages and spillovers may initiate (Mudambi and Santangelo 2014). More generally, there is an issue about the extent to which productivity is the best measure to capture technology and knowledge transfer from MNEs to local firms.…”

Foreign interfirm networks and internationalization: Evidence from sub-Saharan Africa

“…For MNEs focusing on consolidating international production network, sourcing of local components and parts is essential and urgent. Empirical evidence suggests that being suppliers to foreign investors may result in access to more specific knowledge of production and information about foreign markets and distribution, through mechanisms such as "forced linkage effect" and "learning-by-supplying" (Godart and Gorg;Javorcik and Spatareanu, 2008).…”