Foreign Firm Characteristics, Absorptive Capacity and the Institutional Framework: The Role of Mediating Factors for FDI Spillovers in Low- and Middle-Income Countries

58 Pages Posted: 20 Apr 2016

Date Written: November 1, 2012

Abstract

Using a cross-section of more than 25,000 domestic manufacturing firms in 78 low and middle-income countries from the World Bank's Enterprise Surveys, this paper assesses how mediating factors influence intra-industry productivity spillovers to domestic firms from foreign direct investment. It identifies three types of mediating factors: (i) foreign direct investment spillover potential, (ii) domestic firm absorptive capacity, and (iii) the host country's institutional framework. It finds that all three affect the extent and direction of foreign direct investment spillovers on domestic firm productivity. However, the impact of mediating factors depends significantly on the level of domestic firms' productivity and the structure of foreign ownership.

Keywords: Foreign Direct Investment, Microfinance, Emerging Markets, Economic Theory & Research, E-Business

Suggested Citation

Farole, Thomas and Winkler, Deborah E., Foreign Firm Characteristics, Absorptive Capacity and the Institutional Framework: The Role of Mediating Factors for FDI Spillovers in Low- and Middle-Income Countries (November 1, 2012). World Bank Policy Research Working Paper No. 6265. Available at SSRN: https://ssrn.com/abstract=2175446

Thomas Farole

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Deborah E. Winkler

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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