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Spillovers and productivity: Revisiting the puzzle with EU firm level data

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  • Bournakis, Ioannis

Abstract

We revisit the puzzle of FDI spillovers on Total Factor Productivity (TFP) of domestic firms using evidence from six EU countries. Previous literature fails to uncover knowledge spillovers from MNEs operating in the same industry (horizontal) and upstream industries (forward) as it neglects the role of geographical proximity in the case of horizontal spillovers and the role of direct ties between domestic and foreign firms as well as the scope of product differentiation of domestic firm in the case of forward spillovers. The present paper incorporates these new aspects in the identification of horizontal and forward spillovers and shows that economic gains from the presence of MNEs in the domestic economy can be collectively close to 6.1%. Our findings provide one of the missing links highlighted in the meta-analysis of Havranek and Irsova, (2011) and reinstate the importance of FDI as a source of productivity enhancement for local firms. From a policy perspective, our results reheat the debate about appropriate policies that increase MNEs’embeddedness within the local economy.

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  • Bournakis, Ioannis, 2021. "Spillovers and productivity: Revisiting the puzzle with EU firm level data," Economics Letters, Elsevier, vol. 201(C).
    • Handle: RePEc:eee:ecolet:v:201:y:2021:i:c:s0165176521000811
    DOI: 10.1016/j.econlet.2021.109804
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    Cited by:

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    2. Franco, Chiara & Marin, Giovanni & Pietrovito, Filomena, 2022. "Exposure to FDI and attitudes towards multinational enterprises: do M&A impact?," Economics & Statistics Discussion Papers esdp22085, University of Molise, Department of Economics.
    3. Bournakis, Ioannis & Mei, Jen-Chung, 2023. "Gender, firm performance, and FDI supply–purchase spillovers in emerging markets," International Economics, Elsevier, vol. 175(C), pages 90-105.
    4. Ioannis Bournakis & Jen-Chung Mei, 2023. "Embodied and Disembodied Spillovers from FDI: Sectoral Evidence from Ireland," Journal of Industry, Competition and Trade, Springer, vol. 23(1), pages 59-80, June.
    5. Bournakis, Ioannis & Tsionas, Mike, 2022. "Productivity with Endogenous FDI Spillovers: A Novel Estimation Approach," International Journal of Production Economics, Elsevier, vol. 251(C).
    6. Khan, Seefat-E-Rabbi & Asteriou, Dimitrios & Jefferies, Claudia, 2023. "Can FDI explain the growth disparity of the BRIC and the non-BRIC countries? Theoretical and empirical evidence from panel growth regressions," Economic Modelling, Elsevier, vol. 124(C).
    7. Sulistiyo K. Ardiyono & Arianto A. Patunru, 2022. "The impact of employment protection on FDI at different stages of economic development," The World Economy, Wiley Blackwell, vol. 45(12), pages 3679-3714, December.

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    More about this item

    Keywords

    TFP; MNEs; Horizontal Spillovers; Forward Spillovers; Inputs;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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