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Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela

In: Globalization, Firms, and Workers

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  • BRIAN J. AITKEN
  • ANN E. HARRISON

Abstract

Governments often promote inward foreign investment to encourage technology “spillovers” from foreign to domestic firms. Using panel data on Venezuelan plants, we find that foreign equity participation is positively correlated with plant productivity (the “own-plant” effect), but this relationship is only robust for small enterprises. We then test for spillovers from joint ventures to plants with no foreign investment. Foreign investment negatively affects the productivity of domestically owned plants. The net impact of foreign investment, taking into account these two offsetting effects, is quite small. The gains from foreign investment appear to be entirely captured by joint ventures.

Suggested Citation

  • Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811239472_0006
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    1. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Productivity Convergence in Mexico," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 9, pages 134-159, Palgrave Macmillan.
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    3. Steven Globerman, 1979. "Foreign Direct Investment and `Spillover' Efficiency Benefits in Canadian Manufacturing Industries," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 42-56, February.
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    5. Aitken, Brian & Harrison, Ann & DEC, 1994. "Do domestic firms benefit from foreign direct investment? Evidence from panel data," Policy Research Working Paper Series 1248, The World Bank.
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    More about this item

    Keywords

    Globalization; Trade Reform; Foreign Direct Investment; Labour Markets; Employment; Wages; Offshoring; Innovation; Credit Constraints; Industrial Policy; Labour Rights Activism;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F6 - International Economics - - Economic Impacts of Globalization
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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