Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?

Abstract

Governments the world over offer significant inducements to attract inward investment,motivated by the expectation of spillover benefits to augment the primary benefits of a boostto national income from new investment. This paper begins by reviewing possible sources ofFDI induced spillovers. It then provides a comprehensive evaluation of the empirical evidenceon productivity, wages and exports spillovers in developing, developed and transitionaleconomies. Although theory can identify a range of possible spillover channels, robustempirical support for positive spillovers is, at best, mixed. The reasons for this are exploredand the paper concludes with a review of policy aspects.

Keywords: foreign direct investment, multinationals, spillovers, productivity, wages, exports

JEL Classification: F21, F23