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The benefits to domestically owned plants from inward direct investment: the role of vertical linkages

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  • Alla Lileeva

Abstract

The paper estimates the effects of the U.S. direct investment in Canada upon productivity in domestically owned plants. We distinguish between FDI in the industry of domestically controlled plants and FDI in the industries linked through supply or use of intermediate inputs. We find that an increase in supplier FDI increases productivity growth in domestically controlled plants. The positive productivity effects of FDI are more pronounced for plants that buy more intermediates and who purchase science‐based intermediate inputs (i.e., electronics, machinery and equipment, and chemicals). Productivity of domestic plants also benefits from larger‐scale and higher rates of advanced technologies adoption. Ce mémoire évalue les effets de l'investissement direct des Etats‐Unis au Canada sur la productivité des installations en propriété canadienne. On fait une distinction entre l'investissement direct en provenance de l'étranger (IDEPE) dans l'industrie où les installations sont contrôlées par des intérêts domestiques, et l'IDEPE dans des industries qui y sont connectées via l'offre ou de l'usage d'intrants intermédiaires. Il appert qu'un accroissement dans l'IDEPE côté fournisseurs accroît la croissance de la productivité dans les établissements en propriété domestique. Les effets positifs sur la productivité de l'IDEPE sont les plus prononcés pour les établissements qui achètent davantage d'intrants intermédiaires et qui achètent des intrants incorporant un contenu scientifique (i.e., électronique, machinerie et équipement, chimique). La productivité des établissements en propriété domestique bénéficie aussi davantage d'économies d'échelle et de taux plus élevés dans l'adoption de technologies avancées.

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  • Alla Lileeva, 2010. "The benefits to domestically owned plants from inward direct investment: the role of vertical linkages," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(2), pages 574-603, May.
    • Handle: RePEc:wly:canjec:v:43:y:2010:i:2:p:574-603
    DOI: 10.1111/j.1540-5982.2010.01584.x
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    3. Sung Jin Kang, Hongshik Lee, Joonhyung Lee, 2013. "FDI Externalities and the Response of the Korean Stock Market," Korean Economic Review, Korean Economic Association, vol. 29, pages 119-137.
    4. Chukwudi Emmanuel Edeh & Chidera Godson Eze & Sonia Onyinye Ugwuanyi, 2020. "Impact of foreign direct investment on the agricultural sector in Nigeria (1981–2017)," African Development Review, African Development Bank, vol. 32(4), pages 551-564, December.
    5. Gao, Yunshu & Yin, Sisi & Ferrett, Ben & Gao, Bo, 2024. "FDI deregulation and firm innovation: Evidence from firm patents," China Economic Review, Elsevier, vol. 83(C).
    6. Yanling Wang, 2013. "Exposure to FDI and new plant survival: evidence in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 46-77, February.
    7. Philipp Harms & Pierre†Guillaume Méon, 2018. "Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 37-59, February.
    8. Yanling Wang, 2010. "Exposure to FDI and New Plant Survival: Evidence in Canada," Carleton Economic Papers 10-05, Carleton University, Department of Economics.

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