Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects

57 Pages Posted: 11 Aug 2017 Last revised: 4 Jul 2021

See all articles by Christian Fons-Rosen

Christian Fons-Rosen

University of California, Merced

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Carolina Villegas-Sanchez

ESADE Business School

Vadym Volosovych

Erasmus University Rotterdam (EUR); Tinbergen Institute

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Date Written: August 2017

Abstract

We study the impact of FDI on the productivity of host-country firms. FDI has positive spillovers only when foreign and domestic firms use similar technologies. Channeling FDI to sectors where firms share similar technology would significantly increase productivity spillovers from FDI. We show that inventor mobility across sectors is a key channel of technology transfer. To deal with endogeneity concerns we control for sectoral productivity growth, construct a Bartik-style instrument based on the productivity growth of neighboring countries, and exploit differences in knowledge flows across sectors captured by an asymmetric patent citation matrix.

Suggested Citation

Fons-Rosen, Christian and Kalemli-Ozcan, Sebnem and Sorensen, Bent E. and Villegas-Sanchez, Carolina and Volosovych, Vadym, Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects (August 2017). NBER Working Paper No. w23643, Available at SSRN: https://ssrn.com/abstract=3016833

Christian Fons-Rosen (Contact Author)

University of California, Merced ( email )

P.O. Box 2039
Merced, CA 95344
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Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Koc University, Graduate School of Business ( email )

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Bent E. Sorensen

University of Houston - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Carolina Villegas-Sanchez

ESADE Business School ( email )

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Spain

Vadym Volosovych

Erasmus University Rotterdam (EUR) ( email )

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Tinbergen Institute

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