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Learning or Leaning: Persistent and Transitory Spillovers from FDI

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  • Ronald B. Davies
  • Michael J. Lamla
  • Marc Schiffbauer

Abstract

Using firm-level data for Jordan, we estimate the extent to which growth spillovers from foreign direct investment (FDI) to local firms stem from persistent learning externalities (i.e., they endure even after foreign investment leaves as knowledge has been transferred to local firms) or from transitory effects (e.g., demand increases which evaporate following disinvestment). We find that they have a significant transitory nature, with employment and capital growth declining when FDI falls, particularly in downstream industries supplied by locals. This suggests that if FDI-attracting policies are intended to promote sustainable growth, it may be more effective to attract and retain FDI via long-term structural policies, for instance, through low corporate tax rates rather than temporary tax holidays or through policies that strengthen the domestic absorptive capacity and linkages between foreign and local firms.

Suggested Citation

  • Ronald B. Davies & Michael J. Lamla & Marc Schiffbauer, 2016. "Learning or Leaning: Persistent and Transitory Spillovers from FDI," Working Papers 201601, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:201601
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    File URL: http://hdl.handle.net/10197/7529
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    Cited by:

    1. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2015. "Does Foreign Entry Spur Innovation?," Department of Economics, Working Paper Series qt1766k8hs, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Genthner, Robert & Kis-Katos, Krisztina, 2022. "Foreign investment regulation and firm productivity: Granular evidence from Indonesia," Journal of Comparative Economics, Elsevier, vol. 50(3), pages 668-687.
    3. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2020. "Do foreign investment and trade spur innovation?," European Economic Review, Elsevier, vol. 121(C).
    4. Robert Genthner, 2021. "What happens to FDI spillovers when input-output tables go granular?," Economics Bulletin, AccessEcon, vol. 41(3), pages 1425-1430.
    5. Robert Genthner, 2021. "What happens to FDI spillovers when input-output tables go granular?," Economics Bulletin, AccessEcon, vol. 41(3), pages 2099-2105.

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    More about this item

    Keywords

    FDI; Spillovers;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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