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

40 Pages Posted: 17 Jan 2002 Last revised: 9 Apr 2022

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.

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 )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Sonia C. Pereira

University College London ( email )

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London
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Matthew J. Slaughter (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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