Foreign Direct Investment and Knowledge Diffusion in Poor Locations

53 Pages Posted: 2 Apr 2018 Last revised: 4 May 2022

See all articles by Girum Tefera Abebe

Girum Tefera Abebe

Ethiopian Development Research Institute (EDRI)

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Michel Serafinelli

University of California, Berkeley - Department of Economics

Date Written: March 2018

Abstract

We use a plant level survey to identify interactions between domestic plants and foreign direct investment (FDI) in Ethiopia’s manufacturing sector. One third of Ethiopian plants are linked to FDI through labor sharing, supply chains and competition. Technology upgrading most commonly occurs as a result of competition in output markets and observation and imitation of FDI in the same line of business. Other benefits include enhanced managerial practices and knowledge about exporting. Spillovers from FDI are identified by comparing changes in total factor productivity (TFP) among domestic plants in districts where a large greenfield foreign plant produces and districts where FDI in the same industry and around the same time was licensed but not yet operational. Over the four years starting with the year of the FDI opening, the TFP of domestic plants is 11 percent higher in treated districts, employment in domestic plants increases and more domestic plants open.

Suggested Citation

Abebe, Girum Tefera and McMillan, Margaret and Serafinelli, Michel, Foreign Direct Investment and Knowledge Diffusion in Poor Locations (March 2018). NBER Working Paper No. w24461, Available at SSRN: https://ssrn.com/abstract=3154231

Girum Tefera Abebe (Contact Author)

Ethiopian Development Research Institute (EDRI) ( email )

P.O. Box 2479
Addis Ababa
Ethiopia

Margaret McMillan

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michel Serafinelli

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

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