Spillovers Through Backward Linkages from Multinationals: Measurement Matters!

32 Pages Posted: 20 Oct 2009

See all articles by Salvador Barrios

Salvador Barrios

European Commission, JRC - IPTS

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Eric Strobl

Ecole Polytechnique, Paris - Department of Economic Sciences; IZA Institute of Labor Economics

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Abstract

We argue that the measures of backward linkages used in recent papers on spillovers from multinational companies are potentially problematic, as they depend on a number of restrictive assumptions, namely that (i) multinationals use domestically produced inputs in the same proportion as imported inputs, (ii) multinationals have the same input sourcing behaviour as domestic firms, irrespective of their country of origin, and (iii) the demand for locally produced inputs by multinationals is proportional to their share of locally produced output. We discuss why these assumptions are likely to be violated in practice, and provide alternative measures that overcome these drawbacks. Our results, using plant level data for Ireland, show clearly that the choice of backward linkage measure and thus, the assumptions behind them, matters greatly in order to draw possible conclusions regarding the existence of FDI-related spillovers. Using the standard measure employed in the literature we fail to find robust evidence for spillovers through backward linkages. However, when we use alternative measures of backward linkages that relax assumptions (i)-(iii), we find robust evidence for positive FDI backward spillover effects.

Keywords: multinationals, backward spillovers, productivity spillovers

JEL Classification: F23, L22

Suggested Citation

Barrios, Salvador and Gorg, Holger and Strobl, Eric, Spillovers Through Backward Linkages from Multinationals: Measurement Matters!. IZA Discussion Paper No. 4477, Available at SSRN: https://ssrn.com/abstract=1490479

Salvador Barrios (Contact Author)

European Commission, JRC - IPTS ( email )

Edificio Expo
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34 954 48 82 08 (Fax)

Holger Gorg

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Eric Strobl

Ecole Polytechnique, Paris - Department of Economic Sciences ( email )

Ecole Polytechnique
Department of Economics
Paris, 75005
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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