Domestic plant productivity and incremental spillovers from foreign direct investment

Enrico Pennings, C Altomonte

Research output: Contribution to journalArticleAcademicpeer-review

57 Citations (Scopus)

Abstract

We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms' total factor productivity are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and services, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.
Original languageEnglish
Pages (from-to)1131-1148
Number of pages18
JournalJournal of International Business Studies
Volume40
Issue number7
DOIs
Publication statusPublished - 2009

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