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Product Sophistication and Spillovers from Foreign Direct Investment

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  • Katharina Eck

    (University of Munich)

  • Stephan Huber

Abstract

Foreign direct investment (FDI) in developing countries is often associated with higher economic growth due to knowledge and technology spillovers to local firms. One way how FDI speeds up growth is that it facilitates the manufacturing of more sophisticated products by local firms. So far, firm-level evidence is missing on how the presence of multinational firms affects the product sophistication of firms in a developing country. This paper aims to fill this gap. We compile an extensive firm-product-level dataset of Indian manufacturing firms which we complement with information on product sophistication and spillovers from FDI. We then explore different channels through which spillovers from multinationals to local Indian firms foster the manufacturing of sophisticated products. We find evidence that spillovers through supplier linkages strongly increase the manufacturing of sophisticated products in India.

Suggested Citation

  • Katharina Eck & Stephan Huber, 2014. "Product Sophistication and Spillovers from Foreign Direct Investment," Working Papers 340, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    • Handle: RePEc:ost:wpaper:340
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    12. Ali, Nesma & Stiebale, Joel, 2021. "Foreign direct investment, prices and efficiency: Evidence from India," DICE Discussion Papers 363, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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    20. Subash Sasidharan & Ketan Reddy, 2021. "Innovation, Product Sophistication and Export Market Survival: A Study of Indian Manufacturing," Working Papers DP-2021-45, Economic Research Institute for ASEAN and East Asia (ERIA).
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    22. S K Gnangnon, 2022. "Effect of the Utilisation of Unilateral Trade? Preferences on Foreign Direct Investment Flows to Beneficiary Countries," Economic Issues Journal Articles, Economic Issues, vol. 27(1), pages 39-73, March.
    23. Jordaan,Jacob Arie & Douw,Willem & Qiang,Zhenwei, 2020. "Multinational Corporation Affiliates, Backward Linkages, and Productivity Spillovers in Developing and Emerging Economies : Evidence and Policy Making," Policy Research Working Paper Series 9364, The World Bank.
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    More about this item

    Keywords

    Multinational Firms; Spillovers; Sophistication; Technological Change;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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