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The Role of the Efficiency Gap for Spillovers from FDI: Evidence from the UK Electronics and Engineering Sectors

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  • Sourafel Girma
  • Holger Görg

Abstract

This paper focuses on the role of the efficiency gap in determining whether or not domestic firms benefit from productivity spillovers from FDI. We use establishment level data for the period 1980–1992 for the UK. Given that there is substantial heterogeneity of productivity across sectors we focus on two manufacturing sectors in detail, namely, electronics and engineering. We allow for different effects of FDI on establishments located at different quantiles of the productivity distribution by using conditional quantile regression. Overall, while there is some heterogeneity in results across sectors and quantiles, our findings clearly suggest that the efficiency gap matters for productivity spillover benefits. We find evidence for a u-shaped relationship between productivity growth and FDI interacted with the efficiency gap. We also analyse in some detail the impact of changes in relative efficiency on establishments’ ability to benefit from spillovers. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Sourafel Girma & Holger Görg, 2007. "The Role of the Efficiency Gap for Spillovers from FDI: Evidence from the UK Electronics and Engineering Sectors," Open Economies Review, Springer, vol. 18(2), pages 215-232, April.
    • Handle: RePEc:kap:openec:v:18:y:2007:i:2:p:215-232
    DOI: 10.1007/s11079-007-9031-y
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    4. Shawn W. Tan & Dea Tusha, 2023. "Foreign firm characteristics, labour market restrictions and FDI spillovers: Evidence from Moldova," The World Economy, Wiley Blackwell, vol. 46(1), pages 85-119, January.
    5. Katja Zajc Kejžar & Nina Ponikvar, 2014. "Job Destruction and Productivity Gains in Heterogeneous Incumbent Firms: Comparing the Effects of Imports and Inward Foreign Direct Investment," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(6), pages 154-173, November.
    6. Fu, Xiaolan & Buckley, Peter J. & Fu, Xiaoqing Maggie, 2020. "The Growth Impact of Chinese Direct Investment on Host Developing Countries," International Business Review, Elsevier, vol. 29(2).
    7. Di Ubaldo, Mattia & Siedschlag, Iulia, 2022. "Could spillovers from multinationals affect the trade activities of local firms?," Economics Letters, Elsevier, vol. 221(C).
    8. Jacob A Jordaan, 2017. "Producer firms, technology diffusion and spillovers to local suppliers: Examining the effects of Foreign Direct Investment and the technology gap," Environment and Planning A, , vol. 49(12), pages 2718-2738, December.
    9. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    10. Tello, Mario D., 2017. "Innovation and productivity in services and manufacturing firms: the case of Peru," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    11. Wang, Miao & Wong, M. C. Sunny, 2012. "International R&D Transfer and Technical Efficiency: Evidence from Panel Study Using Stochastic Frontier Analysis," World Development, Elsevier, vol. 40(10), pages 1982-1998.
    12. Unjung Whang, 2016. "Skilled-Labor Intensity Differences Across Firms, Endogenous Product Quality, and Wage Inequality," Open Economies Review, Springer, vol. 27(2), pages 251-292, April.
    13. Bedassa Tadesse & Roger White & Elias Shukralla, 2015. "Production Efficiency and the Extensive Margins of U.S. Exporters: An Industry-level Analysis," Open Economies Review, Springer, vol. 26(5), pages 941-969, November.
    14. William Sheng Liu & Frank Wogbe Agbola & Janet Ama Dzator, 2016. "The impact of FDI spillover effects on total factor productivity in the Chinese electronic industry: a panel data analysis," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 21(2), pages 217-234, April.
    15. Hamida, Lamia Ben, 2013. "Are there regional spillovers from FDI in the Swiss manufacturing industry?," International Business Review, Elsevier, vol. 22(4), pages 754-769.
    16. Suyanto & Harry Bloch & Ruhul A. Salim, 2012. "Foreign Direct Investment Spillovers and Productivity Growth in Indonesian Garment and Electronics Manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 48(10), pages 1397-1411, October.
    17. Michael Hübler & Alexander Glas, 2014. "The Energy-Bias of North–South Technology Spillovers: A Global, Bilateral, Bisectoral Trade Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 59-89, May.
    18. Qiu, Yueming & Ortolano, Leonard & David Wang, Yi, 2013. "Factors influencing the technology upgrading and catch-up of Chinese wind turbine manufacturers: Technology acquisition mechanisms and government policies," Energy Policy, Elsevier, vol. 55(C), pages 305-316.
    19. World Bank, 2014. "Malaysia Economic Monitor, June 2014 : Boosting Trade Competitiveness," World Bank Publications - Reports 19303, The World Bank Group.
    20. Karolien Lenaerts & Bruno Merlevede, 2018. "Indirect productivity effects from foreign direct investment and multinational firm heterogeneity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(2), pages 377-400, May.
    21. Smeets, Roger & Bosker, E.M., 2011. "Leaders, laggards and technology seeking strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 481-497.
    22. Jen‐Chung Mei, 2023. "Foreign direct investment and relative capacity: Theory and evidence," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(4), pages 1175-1214, October.
    23. K. Lenaerts & B. Merlevede, 2014. "FDI Spillovers and Multinational Firm Heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/879, Ghent University, Faculty of Economics and Business Administration.
    24. Jacob, Jojo & Sasso, Simone, 2015. "Foreign direct investment and technology spillovers in low and middle-income countries: A comparative cross-sectoral analysis," MERIT Working Papers 2015-035, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    25. Tica Josip & Šikić Luka, 2019. "Endogenous Convergence and International Technological Diffusion Channels," South East European Journal of Economics and Business, Sciendo, vol. 14(2), pages 34-53, December.

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    More about this item

    Keywords

    Foreign direct investment; Efficiency gap; Productivity spillovers; Quantile regressions; F21; F23;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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