Foreign Direct Investment and Knowledge Diffusion in Poor Locations

54 Pages Posted: 7 Jul 2020

See all articles by Girum Abebe

Girum Abebe

University of Westminster - Policy Studies Institute

Margaret McMillan

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

Michel Serafinelli

University of Essex

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.

JEL Classification: F21, O18, D24

Suggested Citation

Abebe, Girum and McMillan, Margaret and Serafinelli, Michel, Foreign Direct Investment and Knowledge Diffusion in Poor Locations. IZA Discussion Paper No. 13422, Available at SSRN: https://ssrn.com/abstract=3643186 or http://dx.doi.org/10.2139/ssrn.3643186

Girum Abebe (Contact Author)

University of Westminster - Policy Studies Institute

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 Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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