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FDI Spillovers and their Interrelationships with Trade

Author

Listed:
  • Molly Lesher

    (OECD)

  • Sébastien Miroudot

    (OECD)

Abstract

Foreign direct investment (FDI) represents an increasingly important dimension of international economic integration with global FDI flows growing faster than output over the past two decades. FDI is a particular form of investment, as it transfers knowledge as well as finance that may otherwise be unavailable in the domestic economy. This paper uses firm-level data to identify FDI spillovers across countries, sectors and time. The analysis suggests that knowledge-related spillovers from FDI vary considerably across sectors. Services industries enjoy the strongest productivity-enhancing effects of FDI, particularly through backward linkages. There is no strong evidence of horizontal productivity spillovers at the aggregate level. The results also indicate a significant and positive correlation between the degree of trade openness and output when measuring the impact of foreign presence in the domestic economy. A positive interaction is found between trade liberalisation and productivity spillovers. Thus, trade liberalisation can be seen as an important component of any reform package designed to help countries maximise the benefits of FDI.

Suggested Citation

  • Molly Lesher & Sébastien Miroudot, 2008. "FDI Spillovers and their Interrelationships with Trade," OECD Trade Policy Papers 80, OECD Publishing.
    • Handle: RePEc:oec:traaab:80-en
    DOI: 10.1787/235843308250
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    Cited by:

    1. René Belderbos & Vincent Van Roy & Leo Sleuwaegen, 2021. "Does trade participation limit domestic firms’ productivity gains from inward foreign direct investment?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(1), pages 83-109, March.
    2. Marjan Petreski & Branimir Jovanovic & Igor Velickovski, 2017. "Tariff-Induced (De)industrialization: An Empirical Analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(3), pages 345-381, September.
    3. Oded Shenkar & Guoyong Liang & Rakefet Shenkar, 2022. "The last frontier of globalization: Trade and foreign direct investment in healthcare," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(2), pages 362-374, March.
    4. Jan Hanousek & Evžen Kočenda & Pavla Vozárová, 2017. "Vliv Přímých Zahraničních Investic Na Dodavatelské Vztahy A Postavení Domácích Výrobců Meziproduktů [FDI's Impact on Inter-industry Interactions among Domestic Suppliers of Intermediate Goods]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(4), pages 391-409.
    5. Yibo Qiao & Nicola Cortinovis & Andrea Morrison, 2024. "MNE Spillovers and Local Export Dynamics in China: The Role of Relatedness and Forward-Backward Linkages," Papers in Evolutionary Economic Geography (PEEG) 2415, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2024.
    6. Santos, Eleonora & Khan, Shahed, 2018. "Determinant Factors of Pecuniary Externalities," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 6(8), pages 180-198.
    7. Jean-Marc Fournier, 2015. "The negative effect of regulatory divergence on foreign direct investment," OECD Economics Department Working Papers 1268, OECD Publishing.
    8. Damijan, Jože P. & Rojec, Matija & Majcen, Boris & Knell, Mark, 2013. "Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 895-922.
    9. Burak Sencer Atasoy, 2021. "The determinants of export sophistication: Does digitalization matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5135-5159, October.
    10. Jan Hanousek & Evzen Kocenda & Pavla Vozarova, 2017. "Horizontal Crowding-Out Versus Vertical Synergies Under The Mne Presence," Proceedings of Economics and Finance Conferences 4507366, International Institute of Social and Economic Sciences.
    11. Tomáš Havránek & Zuzana Iršová, 2011. "How to Stir Up FDI Spillovers: Evidence from a Large Meta-Analysis," Working Papers IES 2011/34, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2011.
    12. Pooja Thakur & L.G. Burange, 2016. "An Analysis of Productivity Spillovers from Foreign Direct Investment in India’s Services Sector," Foreign Trade Review, , vol. 51(4), pages 271-286, November.
    13. Santos, Eleonora, 2017. "Externalities from FDI on domestic firms’ Productivity: A Literature Review for Developed Countries," MPRA Paper 88958, University Library of Munich, Germany.
    14. Jan Hanousek & Evzen Kocenda & Pavla Vozárová, 2020. "Impact of Multinational Enterprises on Competition, Productivity and Trade Spillovers across European Firms," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(2), pages 172-212, August.
    15. Robert Price & Andreas Wörgötter, 2011. "Estonia: Making the Most of Globalisation," OECD Economics Department Working Papers 876, OECD Publishing.
    16. Juhász, Anikó & Wagner, Hartmut, 2013. "An analysis of Hungarian agri-food export competitiveness," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 115(3), pages 1-7, December.
    17. Radovan Kovačević, 2009. "The Structural Characteristics Of World Trade And The Merchandise Exports Of Serbia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 54(181), pages 55-92, April – J.
    18. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    19. Shima’a Hanafy & Marcus Marktanner, 2019. "Sectoral FDI, absorptive capacity and economic growth – empirical evidence from Egyptian governorates," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(1), pages 57-81, January.
    20. Laura Casi & Laura Resmini, 2014. "Spatial complexity and interactions in the FDI attractiveness of regions," Papers in Regional Science, Wiley Blackwell, vol. 93, pages 51-78, November.
    21. Tomas Havranek & Zuzana Irsova, 2012. "Survey Article: Publication Bias in the Literature on Foreign Direct Investment Spillovers," Journal of Development Studies, Taylor & Francis Journals, vol. 48(10), pages 1375-1396, October.
    22. Urata, Shujiro & Baek, Youngmin, 2022. "Technology Spillover and Absorptive Capacity of Firms and Countries," ADBI Working Papers 1323, Asian Development Bank Institute.
    23. Pavla NIKOLOVOVÁ, 2013. "Sourcing Patterns of FDI Activity and Their Impact on the Domestic Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(3), pages 288-302, July.

    More about this item

    Keywords

    backward linkage; FDI; forward linkage; IAS 19; investment; micro data; services; spillovers; technology; trade liberalisation; trade openness;
    All these keywords.

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