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DO DOMESTIC FIRMS REALLY BENEFIT FROM FOREIGN DIRECT INVESTMENT? THE ROLE OF HORIZONTAL AND VERTICAL SPILLOVERS AND ABSORPTIVE CAPACITY

Smruti Ranjan Behera
경제연구소 (Hanyang Economic Research Institute)|2015.06|Journal of Economic Development|제40권 제2호|pp. 57-86|DOI 10.35866/caujed.2015.40.2.003

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참고문헌

키워드

Foreign Direct InvestmentUnit Root TestManufacturingPanel CointegrationTechnology Spillover
주제분류경제학

초록

This paper examines whether the existence of externalities associated with foreign direct investment (FDI) benefits the domestic firms of Indian manufacturing industries. Empirical findings reveal that local firms benefit from vertical foreign presence, whereas the horizontal foreign presence at the industry level could not substantially raise the value addition of labor across Indian industries. The absorptive capacity of domestic firms is highly relevant to reap the benefit from foreign presence, and could act as a precondition for incorporating the benefit of FDI externalities. Higher concentration and a greater size of the domestic market facilitate to raise the productivity spillovers from foreign presence. Furthermore, the FDI-technology spillovers seem to be higher for R&D-and technology-intensive firms.

Abstract

This paper examines whether the existence of externalities associated with foreign direct investment (FDI) benefits the domestic firms of Indian manufacturing industries. Empirical findings reveal that local firms benefit from vertical foreign presence, whereas the horizontal foreign presence at the industry level could not substantially raise the value addition of labor across Indian industries. The absorptive capacity of domestic firms is highly relevant to reap the benefit from foreign presence, and could act as a precondition for incorporating the benefit of FDI externalities. Higher concentration and a greater size of the domestic market facilitate to raise the productivity spillovers from foreign presence. Furthermore, the FDI-technology spillovers seem to be higher for R&D-and technology-intensive firms.

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