Productivity Spillovers from Foreign Direct Investment: A Review of the Literature
Middle Eastern Finance and Economics Issue 11 (2011)
16 Pages Posted: 18 Dec 2013
Date Written: 2011
Abstract
Attracting foreign direct investment (FDI) is considered as an important source of sustainable development, income growth and employment for developing countries. Foreign-owned firms are believed to have the potential to benefit the domestic firms by the spillover of their technological know-how, innovation capability, and marketing and management skills. These spillovers are expected to result in an increase in the productivity of the domestic firms. This paper reviews the empirical literature on spillovers from FDI. Studies have found conflicting evidence on the spillover effects. While some of the studies find that there exist positive spillovers from foreign-owned firms, some others find no spillover effects. A considerable number of studies find that productivity spillovers from FDI are dependent on the absorptive capacity of the domestic firms and technical proximity of foreign-owned firms and domestically-owned firms.
Keywords: Foreign direct investment, productivity, spillovers
JEL Classification: D24, F21, F23, O30
Suggested Citation: Suggested Citation