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The spillover effect of multinational companies has, historically, been subject to much debate. The assumption that the host country can be expected to enjoy spillovers – improvements in the balance of payments, in the influx of foreign currency and in other sectors of the economy not directly affected by the multinational – has not necessarily been corroborated in practice. First published in 1989, this book addresses this debate, and the very different conclusions that can be drawn about spillovers. Reporting on significant research on Latin America and drawing comparisons with findings elsewhere, Foreign Investment and Spillovers provides students and researchers with a truly international perspective.
March 1995 Exports respond unpredictably to a change in real exchange rates, suggests evidence from the 1980s. Recent theoretical work explains this as a consequence of the sunk costs associated with breaking into foreign markets. Sunk costs include the cost of packaging, upgrading product quality, establishing marketing channels, and accumulating information on demand sources. The authors use micro panel data to estimate a dynamic discrete-choice model of participation in export markets, a model derived from the Krugman-Baldwin sunk-cost hysteresis framework. Applying the model to data on manufacturing plants in Colombia (1981-89), they test for the presence of sunk entry costs and quantify the importance of those costs in explaining export patterns. The econometric results reject the hypothesis that sunk costs are zero. The results, which control for both observed and unobserved sources of plant heterogeneity, indicate that prior export market experience has a substantial effect on the probability of exporting, but its effect depreciates fairly quickly. The reentry costs of plants that have been out of the export market for a year are substantially lower than the costs of a first-time exporter. After a year out of the export market, however, the reentry costs are not significantly different from the entry costs. Plant characteristics are also associated with export behavior: large old plants owned by corporations are more likely to export than other plants. Variations in plant-level cost and demand conditions have much less effect on the profitability of exporting than variations in macroeconomic conditions and sunk costs do. It appears especially difficult to break into foreign markets during periods of world recession.
China has become such an important element of the global economy that its influence cannot be ignored in almost any field of endeavour. The phenomenal impact of FDI in China and its (largely trade-related) consequences has been well documented and now there is a significant literature on the phenomenon of outward investment from China too. This book is an in depth study of the international business relationships of China covering both inward and outward foreign direct investment, its impact and related theoretical and policy issues. This volume of highly renowned author Peter Buckley's collected papers from 2005-8 continues his interest in the theory of international business (Section I) and policies towards foreign direct investment (FDI) (Section IV) but has a major concentration on China, both as regards outward foreign direct investment (OFDI) from China (Section II) and FDI in China (Section III).
"Javorcik, Saggi, and Spatareanu use a firm-level panel data set from Romania to examine whether the nationality of foreign investors affects the degree of vertical spillovers from foreign direct investment. Investors' country of origin may matter for spillovers to domestic producers in upstream sectors (supplying intermediate inputs) in two ways. First, the share of intermediate inputs sourced by multinationals from a host country is likely to increase with the distance between the host and the source economy. Second, the sourcing pattern is likely to be affected by preferential trade agreements that cover some but not other source economies. In this case, the Association Agreement signed between Romania and the European Union (EU) implies that inputs sourced from the EU are subject to a lower tariff than inputs sourced from America or Asia. Moreover, while for European investors intermediate inputs sourced from home country suppliers comply with the rules of origin and thus can be exported to the EU on preferential terms, this would not be the case for home country suppliers of American or Asian multinationals. Therefore, one would expect that American and Asian investors source more from Romania than EU investors and thus present greater potential for vertical spillovers. The empirical analysis produces evidence in support of the authors' hypothesis. They find a positive association between the presence of.
Over the past twenty years, foreign direct investments have spurred widespread liberalization of the foreign direct investment (FDI) regulatory framework. By opening up to foreign investors and encouraging FDI, which could result in increased capital and market access, many countries have improved the operational conditions for foreign affiliates and strengthened standards of treatment and protection. By assuring investors that their investment will be legally protected with closed bilateral investment treaties (BITs) and double taxation treaties (DTTs), this in turn creates greater interest in FDI.
A vast new literature on the sources of economic growth has now accumulated. This book critically reviews the most significant works in this field and summarizes what is known today about the sources of economic growth. The first part discusses the most important theoretical models that have been used in modern growth theory as well as methodological issues in productivity measurement. The second part examines the long-term record on productivity among Organization for Economic Co-operation and Development (OECD) countries, considers the sources of growth among them with particular attention to the role of education, investigates convergence at the industry level among them, and examines the productivity slowdown of the 1970s. The third part looks at the sources of growth among non-OECD countries. Each chapter emphasizes the factors that appear to be most important in explaining growth performance.
This paper examines the role financial markets play in the relationship between foreign direct investment (FDI) and economic development. We model an economy with a continuum of agents indexed by their level of ability. Agents can either work for the foreign company or undertake entrepreneurial activities, which are subject to a fixed cost. Better financial markets allow agents to take advantage of knowledge spillovers from FDI, magnifying the output effects of FDI. Empirically, we show that well-developed financial markets allow significant gains from FDI, while FDI alone plays an ambiguous role in contributing to development.
This paper focuses on the role of absorptive capacity in determining whether or not domestic firms benefit from productivity spillovers from FDI using establishment level data for the UK. We allow for different effects of FDI on establishments located at different quantiles of the productivity distribution by using conditional quantile regression. Overall, while there is some heterogeneity in results across sectors and quantiles, our findings clearly suggest that absorptive capacity matters for productivity spillover benefits. We find evidence for a u-shaped relationship between productivity growth and FDI interacted with absorptive capacity. We also analyse in some detail the impact of changes in absorptive capacity on establishments' ability to benefit from spillovers.