IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v43y2011i19p2451-2463.html
   My bibliography  Save this article

Cross-sectional estimation of FDI spillovers when FDI is endogenous: OLS and IV estimates for Mexican manufacturing industries

Author

Listed:
  • Jacob Jordaan

Abstract

Cross-sectional estimates of Foreign Direct Investment (FDI) spillovers are biased when the variable capturing the cross-industry variation of foreign participation is endogenous to the estimated regression model. In this article I introduce an original instrument for this problematic FDI variable, capturing the general FDI intensity of manufacturing industries. I use this instrument to estimate FDI externalities in a cross-section of Mexican manufacturing industries. The main findings show that, in contrast to the common criticism that Ordinary Least Squares (OLS) estimation produces an upward bias in the estimated FDI externality effect, for the sample of Mexican manufacturing industries OLS estimation causes a downward bias. Controlling for the tendency among foreign manufacturing firms to gravitate towards low productivity industries, the instrumental variable estimations provide robust evidence of significantly larger positive FDI spillover effects.

Suggested Citation

  • Jacob Jordaan, 2011. "Cross-sectional estimation of FDI spillovers when FDI is endogenous: OLS and IV estimates for Mexican manufacturing industries," Applied Economics, Taylor & Francis Journals, vol. 43(19), pages 2451-2463.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:19:p:2451-2463
    DOI: 10.1080/00036840903262977
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840903262977
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036840903262977?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jozef Konings, 2000. "The Effects of Foreign Direct Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies," William Davidson Institute Working Papers Series 344, William Davidson Institute at the University of Michigan.
    2. Konings, Jozef, 2000. "The Effects of Direct Foreign Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies," CEPR Discussion Papers 2586, C.E.P.R. Discussion Papers.
    3. Gordon H. HANSON, 2001. "Should Countries Promote Foreign Direct Investment?," G-24 Discussion Papers 9, United Nations Conference on Trade and Development.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Monastiriotis, Vassilis, 2014. "Origin of FDI and domestic productivity spillovers: does European FDI have a 'productivity advantage' in the ENP countries?," LSE Research Online Documents on Economics 55267, London School of Economics and Political Science, LSE Library.
    2. Binyam A. Demena & Peter A. G. van Bergeijk, 2017. "A Meta-Analysis Of Fdi And Productivity Spillovers In Developing Countries," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 546-571, April.
    3. Jordaan, Jacob A., 2011. "FDI, Local Sourcing, and Supportive Linkages with Domestic Suppliers: The Case of Monterrey, Mexico," World Development, Elsevier, vol. 39(4), pages 620-632, April.
    4. Farole, Thomas & Winkler, Deborah, 2012. "Foreign firm characteristics, absorptive capacity and the institutional framework : the role of mediating factors for FDI spillovers in low- and middle-income countries," Policy Research Working Paper Series 6265, The World Bank.
    5. Egle Vaznyte & Petra Andries & Sarah Demeulemeester, 2021. "“Don’t leave me this way!” Drivers of parental hostility and employee spin-offs’ performance," Small Business Economics, Springer, vol. 57(1), pages 265-293, June.
    6. Dea Tusha & Jacob A. Jordaan, 2021. "Biased FDI spillovers in incomplete datasets: An empirical examination," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 582-600, May.
    7. Engidaw Sisay Negash & Wenjie Zhu & Yangyang Lu & Zhikai Wang, 2020. "Does Chinese Inward Foreign Direct Investment Improve the Productivity of Domestic Firms? Horizontal Linkages and Absorptive Capacities: Firm-Level Evidence from Ethiopia," Sustainability, MDPI, vol. 12(7), pages 1-23, April.
    8. Bykova, Anna & Jardon, Carlos M., 2017. "Lean against the wind: The moderation effect of foreign investments during the economic recession in Russia," Journal of Economics and Business, Elsevier, vol. 93(C), pages 1-14.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jordaan, Jacob A., 2005. "Determinants of FDI-induced externalities: New empirical evidence for Mexican manufacturing industries," World Development, Elsevier, vol. 33(12), pages 2103-2118, December.
    2. Martin Srholec, 2003. "Přímé zahraniční investice a technologická změna [Foreign direct investment and technology change]," Politická ekonomie, Prague University of Economics and Business, vol. 2003(5), pages 695-713.
    3. Greenaway, David & Görg, Holger, 2002. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Investment?," CEPR Discussion Papers 3485, C.E.P.R. Discussion Papers.
    4. Isabel Proença & Maria Paula Fontoura & Nuno Crespo, 2002. "Productivity Spillovers from Multinational Corporations in the Portuguese Case: Evidence from a Short Time Period Panel Data," Working Papers Department of Economics 2002/06, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. Argentino Pessoa, 2008. "Multinational Corporations, Foreign Investment, and Royalties and License Fees: Effects on Host-Country Total Factor Productivity," Notas Económicas, Faculty of Economics, University of Coimbra, issue 28, pages 6-31, December.
    6. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2015. "Does Foreign Entry Spur Innovation?," CEPR Discussion Papers 10757, C.E.P.R. Discussion Papers.
    7. Krammer, Marius Sorin, 2008. "International R&D spillovers in transition countries: the impact of trade and foreign direct investment," Kiel Advanced Studies Working Papers 446, Kiel Institute for the World Economy (IfW Kiel).
    8. Bessonova, Eugenia, 2010. "Efficiency of Manufacturing in Russia: Effect of Domestic Competition and FDI," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 17(1), pages 106-127.
    9. Alen Škudar, 2004. "Survey and Analysis of Foreign Direct Investment in the Republic of Croatia," Surveys 9, The Croatian National Bank, Croatia.
    10. Kolasa Marcin, 2008. "How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers, absorptive capacity and competition," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(1), pages 155-173.
    11. Gandenberger, Carsten, 2015. "Theoretical perspectives on the international transfer and diffusion of climate technologies," Working Papers "Sustainability and Innovation" S12/2015, Fraunhofer Institute for Systems and Innovation Research (ISI).
    12. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2020. "Do foreign investment and trade spur innovation?," European Economic Review, Elsevier, vol. 121(C).
    13. Stefan Lutz & Oleksandr Talavera & Sang-Min Park, 2008. "Effects of Foreign Presence in a Transition Economy: Regional and Industrywide Investments and Firm-Level Exports in Ukrainian Manufacturing," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(5), pages 82-98, September.
    14. Jože P. Damijan & José De Sousa & Olivier Lamotte, 2009. "Does international openness affect the productivity of local firms?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(3), pages 559-586, July.
    15. Paulina Broniatowska & Paweł Strawiński, 2021. "Foreign- and domestic firm ownership and its impact on wages. Evidence from Poland," European Journal of Industrial Relations, , vol. 27(4), pages 445-466, December.
    16. Paus, Eva A., 2004. "Productivity Growth in Latin America: The Limits of Neoliberal Reforms," World Development, Elsevier, vol. 32(3), pages 427-445, March.
    17. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute of Labor Economics (IZA).
    18. Daniel Chudnovsky & Andres Lopez & Gaston Rossi, 2008. "Foreign Direct Investment Spillovers and the Absorptive Capabilities of Domestic Firms in the Argentine Manufacturing Sector (1992-2001)," Journal of Development Studies, Taylor & Francis Journals, vol. 44(5), pages 645-677.
    19. Vera Belaya & Jon Henrich Hanf, 2010. "Foreign direct investment as an agent of change in Russian agrifood business - consequences of the export of chain management concepts by foreign investors," Post-Communist Economies, Taylor & Francis Journals, vol. 22(1), pages 55-72.
    20. David Sondermann, 2014. "Productivity in the euro area: any evidence of convergence?," Empirical Economics, Springer, vol. 47(3), pages 999-1027, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:43:y:2011:i:19:p:2451-2463. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.