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Transmission channels matter: Identifying spillovers from FDI

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  • Binyam Afewerk Demena
  • Syed Mansoob Murshed

Abstract

The empirical literature on the spillovers of foreign direct investment (FDI) has so far not analysed the well-established theoretical transmission channels through which FDI impacts on domestic firms. This paper shows how channels of transmission matter for productivity spillovers from FDI by providing more fuller and nuanced picture of the effects. We analyse a panel of eight sub-Saharan Africa countries spanning the period 2006–2014 and demonstrate the empirical relevance of distinguishing three channels – demonstration, labour mobility, and competition. We provide measures of these effects and also show that the size, significance, and sign of spillover effects depend on the local absorptive capacity, technology levels, geographical proximity, and foreign ownership structure. Overall, results suggest that demonstration spillovers are large and economically significant, whereas the patterns of labour mobility and competition spillovers are not stable across the various specifications and measures. Finally, the analysis involves several measures of further investigations and robustness checks. Results are robust to the construction of spillover and outcome variables, the introduction of additional explanatory variables and an alternative estimation method.

Suggested Citation

  • Binyam Afewerk Demena & Syed Mansoob Murshed, 2018. "Transmission channels matter: Identifying spillovers from FDI," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(7), pages 701-728, October.
    • Handle: RePEc:taf:jitecd:v:27:y:2018:i:7:p:701-728
    DOI: 10.1080/09638199.2018.1439083
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    Cited by:

    1. Demena, B.A. & Msami, J. & Mmari, D.E. & van Bergeijk, P.A.G., 2021. "Productivity premia and firm heterogeneity in Eastern Africa," ISS Working Papers - General Series 680, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Joshua Akinlolu Olayinka & Sirinuch Loykulnanta, 2019. "How Domestic Firms Benefit from the Presence of Multinational Enterprises: Evidence from Indonesia and Philippines," Economies, MDPI, vol. 7(3), pages 1-14, September.
    3. Dobdinga Cletus Fonchamnyo & Ongo Nkoa Bruno Emmanuel & Gildas Dohba Dinga, 2021. "The effects of trade, foreign direct investment, and economic growth on environmental quality and overshoot: a dynamic common correlation effects approach," SN Business & Economics, Springer, vol. 1(10), pages 1-27, October.
    4. Moralles, Herick Fernando & Moreno, Rosina, 2020. "FDI productivity spillovers and absorptive capacity in Brazilian firms: A threshold regression analysis," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 257-272.
    5. Amza Mounchili Youwa & Henri Ngoa Tabi, 2022. "Does Multinationals Entry Mode Affect Local Firms’ Export Behaviours? Evidence from Cameroon," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(8), pages 413-423, August.
    6. Chatzistamoulou, Nikos & Kounetas, Kostas & Tsekouras, Kostas, 2022. "Technological hierarchies and learning: Spillovers, complexity, relatedness, and the moderating role of absorptive capacity," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    7. Ronald Ebenezer Essel, 2023. "Foreign direct investment, technological spillover, and total factor productivity growth in Ghana," SN Business & Economics, Springer, vol. 3(8), pages 1-34, August.
    8. Shakiru, Twahil, 2023. "Dependence Between Foreign Direct Investment and Carbon Dioxide Emissions in East Africa: Bivariate Distributional Copula Regression Technique," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 30(2), July.
    9. Yasmeen, Rizwana & Zhaohui, Cui & Hassan Shah, Wasi Ul & Kamal, Muhammad Abdul & Khan, Anwar, 2022. "Exploring the role of biomass energy consumption, ecological footprint through FDI and technological innovation in B&R economies: A simultaneous equation approach," Energy, Elsevier, vol. 244(PA).
    10. Sarker, Bibhuti & Serieux, John, 2022. "Foreign-invested and domestic firm attributes and spillover effects: Evidence from Brazil," Journal of Multinational Financial Management, Elsevier, vol. 63(C).
    11. Manal Ayyad Dhif Alshammry & Saqib Muneer, 2023. "The influence of economic development, capital formation, and internet use on environmental degradation in Saudi Arabia," Future Business Journal, Springer, vol. 9(1), pages 1-16, December.
    12. Demena, Binyam Afewerk & Afesorgbor, Sylvanus Kwaku, 2020. "The effect of FDI on environmental emissions: Evidence from a meta-analysis," Energy Policy, Elsevier, vol. 138(C).
    13. Yoshimichi Murakami & Keijiro Otsuka, 2020. "Governance, Information Spillovers, and Productivity of Local Firms: Toward an Integrated Approach to Foreign Direct Investment and Global Value Chains," The Developing Economies, Institute of Developing Economies, vol. 58(2), pages 134-174, June.

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