Does it Matter Where You Come from? Vertical Spillovers from Foreign Direct Investment and the Nationality of Investors

22 Pages Posted: 20 Apr 2016

See all articles by Beata Smarzynska Javorcik

Beata Smarzynska Javorcik

University of Oxford - Department of Economics; World Bank - Development Research Group (DECRG); Centre for Economic Policy Research (CEPR)

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Mariana Spatareanu

Rutgers University Department of Economics and Division of Global Affairs

Date Written: November 5, 2004

Abstract

Javorcik, Saggi, and Spatareanu use a firm-level panel data set from Romania to examine whether the nationality of foreign investors affects the degree of vertical spillovers from foreign direct investment. Investors' country of origin may matter for spillovers to domestic producers in upstream sectors (supplying intermediate inputs) in two ways. First, the share of intermediate inputs sourced by multinationals from a host country is likely to increase with the distance between the host and the source economy. Second, the sourcing pattern is likely to be affected by preferential trade agreements that cover some but not other source economies. In this case, the Association Agreement signed between Romania and the European Union (EU) implies that inputs sourced from the EU are subject to a lower tariff than inputs sourced from America or Asia. Moreover, while for European investors intermediate inputs sourced from home country suppliers comply with the rules of origin and thus can be exported to the EU on preferential terms, this would not be the case for home country suppliers of American or Asian multinationals.

Therefore, one would expect that American and Asian investors source more from Romania than EU investors and thus present greater potential for vertical spillovers. The empirical analysis produces evidence in support of the authors' hypothesis. They find a positive association between the presence of American and Asian companies in downstream sectors and the productivity of Romanian firms in the supplying industries. Further, the productivity of Romanian firms in the supplying sectors is negatively correlated with operations of European investors in downstream sectors. The differences between the effects associated with investors of different origin are statistically significant.

This paper - a product of the Trade Team, Development Research Group - is part of a larger effort in the group to study the effects of foreign direct investment on developing countries.

Keywords: spillovers, foreign direct investment, technology transfer

JEL Classification: F23

Suggested Citation

Javorcik, Beata Smarzynska and Saggi, Kamal and Spatareanu, Mariana, Does it Matter Where You Come from? Vertical Spillovers from Foreign Direct Investment and the Nationality of Investors (November 5, 2004). Available at SSRN: https://ssrn.com/abstract=625327

Beata Smarzynska Javorcik (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

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Mariana Spatareanu

Rutgers University Department of Economics and Division of Global Affairs ( email )

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973 353 5819 (Fax)

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