Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?

40 Pages Posted: 17 Jan 2002

See all articles by Jonathan Haskel

Jonathan Haskel

Imperial College Business School; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Sonia C. Pereira

University College London

Matthew J. Slaughter

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 2002

Abstract

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 plant'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.

JEL Classification: F2, L1

Suggested Citation

Haskel, Jonathan and Pereira, Sonia C. and Slaughter, Matthew J., Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms? (January 2002). NBER Working Paper No. W8724. Available at SSRN: https://ssrn.com/abstract=297350

Jonathan Haskel

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
020 7594 8563 (Phone)
020 7594 5915 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

Sonia C. Pereira

University College London ( email )

Gower Street
London
United Kingdom
+20 7916 2775 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/displayProfile.php?staff_key=91

Matthew J. Slaughter (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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