Estimating direct and indirect effects of foreign direct investment on firm productivity in the presence of interactions between firms

Sourafel Girma, Yundan Gong, Holger Görg*, Sandra Lancheros

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We implement a method to estimate the direct effects of foreign-ownership on foreign firms' productivity and the indirect effects (or spillovers) from the presence of foreign-owned firms on other foreign and domestic firms' productivity in a unifying framework, taking interactions between firms into account. To do so, we relax a fundamental assumption made in empirical studies examining a direct causal effect of foreign ownership on firm productivity, namely that of no interactions between firms. Based on our approach, we are able to combine direct and indirect effects of foreign ownership and calculate the total effect of foreign firms on local productivity. Our results show that all these effects vary with the level of foreign presence within a cluster, an important finding for the academic literature and policy debate on the benefits of attracting foreign owned firms.

Original languageEnglish
Pages (from-to)157-169
Number of pages13
JournalJournal of International Economics
Volume95
Issue number1
Early online date7 Nov 2014
DOIs
Publication statusPublished - Jan 2015

Bibliographical note

© 2014, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 Internationalhttp://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • companiestreatment
  • effectsspillovers
  • multinational

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