Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?
Imperial College Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Sonia C. Pereira
University College London
Matthew J. Slaughter
Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)
Tuck School of Business Working Paper No. 03-10
Are there productivity spillovers from FDI to domestic firms, and, if so, how much should host countries be willing to pay to attract FDI? To examine these questions we use a plant-level panel covering U.K. manufacturing from 1973 through 1992. Across a wide range of specifications, we estimate a significantly positive correlation between a domestic plant's TFP and the foreign-affiliate share of activity in that planti's industry. This is consistent with positive FDI spillovers. We do not generally find significant effects on plant TFP of the foreign-affiliate share of activity in that plant's region. Typical estimates suggest that a 10 percentage-point increase in foreign presence in a U.K. industry raises the TFP of that industry's domestic plants by about 0.5 percent. We also use these estimates to calculate the per-job value of these spillovers. These calculated values appear to be less than per-job incentives governments have granted in recent high-profile cases, in some cases several times less.
Number of Pages in PDF File: 40
JEL Classification: F2, L1working papers series
Date posted: February 19, 2002
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