Technological Trajectories and FDI: Top Bananas and Underdogs

Santos, Eleonora and Khan, Shahed (2018): Technological Trajectories and FDI: Top Bananas and Underdogs.

Abstract

Previous empirical evidence searching for externalities from Foreign Direct investment in Portugal showed mixed results. Using a new database containing 5,045 Portuguese manufacturing firms grouped by technological trajectories, we investigate the occurrence and magnitude of externalities from FDI in 1995-2007. We find both positive and negative externalities in scale-intensive and supplier-dominated industries. The magnitude of externalities is higher in the current period than in lagged periods. Because positive externalities outweigh the negative externalities, on the whole a 1% increase in foreign presence (measured by turnover) increases the Total Factor Productivity of domestic firms by 0.42 percentage points. Thus, the Investment Promoting Agency should capture foreign projects in those technological groups.

• Item Type: MPRA Paper
• Language: English
• Keywords: Technological Trajectories, Multinational Corporations, Productivity.
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D

References

[1] Alonso-Borrego, C. and Arellano, M. (1996) Symmetrically normalised instrumental variable estimation using panel data. CEMFI Working Paper 9612.

[2] Amador, J. (2011) Produtividade, Dimensão e Intensidade Capitalística num Conjunto de Setores da Indústria Transformadora Portuguesa: Uma Análise Não Paramétrica, Banco de Portugal, Departamento de Estudos Económicos.

[3] Arellano, M. and Bond, S. (1998) Dynamic Panel Data Estimation using DPD98 for Gauss. Mimeo. Institute for Fiscal Studies, London.

[4] Arellano, M. and Bond, S. (1991) Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, Review of Economic Studies. 58(2): 277-97.

[5] Arellano, M., Bover, O. (1995) Another look at the instrumental-variable estimation of error components models. Journal of Econometrics. 68: 29-52.

[6] Arnold, J. and Javorcik, B. (2005) Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia. CEPR Discussion Paper No. 5065.

[7] Baldwin, R. (1996) Progressive economic integration: making the magic work again, The Economics of Transition, The European Bank for Reconstruction and Development. 4(2): 512-514.

[8] Baltagi, B. (2008) Forecasting with panel data, Journal of Forecasting, John Wiley & Sons, Ltd. 2008; 27(2): 153-173. Barrios, S. and Strobl, E. Foreign Direct Investment and Productivity Spillovers: Evidence from the Spanish Experience. Weltwirtschaftliches Archiv. 138(3):459-481.

[9] Blundell, R. and Bond, S. (1998) Initial conditions and moment restrictions in dynamic panel-data models. Journal of Econometrics. 87: 115-143.

[10] Bogliacino, F. and Pianta, M. (2011) Engines of growth. Innovation and productivity in industry groups. Structural Change and Economic Dynamics. 22: 41-53.

[11] Bond, S. (2002) Dynamic panel data models: a guide to micro data methods and practice. Portuguese Economic Journal. 1(2): 141–162.

[12] Buckley, P., Clegg, J., Zheng, P., Siler, P. A., and Giorgioni, G. (2010) The impact of foreign direct investment on the productivity of China’s automotive industry In P. J. Buckley (Org.), Foreign direct investment, China and the world economy. London: Palgrave.

[13] Cohen, W., Levinthal, D. (1989) Innovation and Learning: The Two Faces of R&D. Economic Journal. 99:569-596.

[14] Crespo, N., Fontoura, M. P. and Proença, I. (2009) FDI spillovers at regional level: Evidence from Portugal. Papers in Regional Science. 88(3): 591-607.

[15] Crespo, N.; Proença, I and Fontoura, M. (2012) The Spatial Dimension in FDI Externalities: Evidence at the Regional Level from Portugal. Regional and Sectoral Economic Studies, Euro-American Association of Economic Development. 12(1): 115-130.

[16] Farinha, L. and Mata J. (1996) The impact of Foreign Direct Investment in the Portuguese Economy. Banco de Portugal Working Paper. 16-96.

[17] Griffith, R., Harrison, R., and Van Reenen, J. (2006) How special is the special relationship? Using the impact of US R&D spillovers on UK firms as a test of technology sourcing. American Economic Review. 96(5): 1859-1875.

[18] Haskel, J. E., Pereira, S. C. and Slaughter, M. J. (2007) Does inward foreign direct investment boost the productivity of domestic firms? The review of economics and statistics. 89(3): 482-496.

[19] Karpaty, P. and Lundberg, L. (2004) Foreign direct investment and productivity spillovers in Swedish manufacturing, FIEF Working Paper Series No. 194.

[20] Keller, W. and Yeaple, S. (2009) Multinational enterprises, international trade, and productivity growth: firm-level evidence from the United States, The Review of Economics and Statistics. 91(4): 821-831.

[21] Kinoshita, Y. (2001) R&D and Technology Externalities through FDI: Innovation and Absorptive Capacity. CEPR Discussion Paper 2775.

[22] Lapan. H. and Bardhan, P. (1973) Localized Technical Progress and Transfer of Technology and Economic Development. Journal of Economic Theory. 6: 585-595.

[23] Lee, J. and Blevins, D. (1990) Profitability and sales growth in industrialized versus newly industrializing countries. Management International Review. 30(1), 87-100.

[24] Lee, S. and Xiao, Q. (2011) An Examination of the curvilinear relationship between capital intensity and firm performance for publicly traded U.S. hotels and restaurants. International Journal of Contemporary Hospitality Management. 23(6): 862-880.

[25] Levinsohn, J. and Petrin, A. (2003) Estimating Production Functions Using Inputs to Control for Unobservables. Review of Economic Studies. 70: 317-41.

[26] Liu, X. and Buck, T. (2007) Innovation performance and channels for international technology spillovers: Evidence from Chinese high-tech industries. Research Policy. 36(3): 355–366.

[27] Markusen, J. R. and Venables, A. (1999) Multinational Firms and the New Trade Theory. Journal of International Economics, Elsevier. 462: 183–203.

[28] Merlevede, B. and Purice, V. (2014) Distance, Time since Foreign Entry, and Knowledge Externalities from Foreign Direct Investment, Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/896, Ghent University, Faculty of Economics and Business Administration.

[29] O’Mahony, M., Van Ark, B. (Eds.) (2003) EU Productivity and Competitiveness: An Industry Perspective. Can Europe Resume the Catching-up Process? European Commission, Luxembourg.

[30] Olley, G. S. and Pakes, A. (1996) The Dynamics of Productivity in the Telecommunications Equipment Industry. Econometrica. 64(6): 1263-1297.

[31] Pavitt, K., Robson, M., Townsend, J. (1989) Technological accumulation, diversification and organisation in UK companies. Management Science. 1945-1983.

[32] Perez, T. (1997) Multinational Firms and Technological Externalities: An Evolutionary Model. Journal of Evolutionary Economics. 7(2): 169–192.

[33] Proença, I.; Fontoura, M. and Crespo, N. (2002) Productivity Externalities from Multinational Corporations in the Portuguese Case: Evidence from a Short Time Period Panel Data. Working Papers Department of Economics 06. ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

[34] Proença, I.; Fontoura, M. and Crespo, N. (2006) Productivity Externalities from Multinational Corporations: Vulnerability to Deficient Estimation. Applied Econometrics and International Development. 6(1): 87–98.

[35] Roodman, D. (2009) A Note on the Theme of Too Many Instruments, Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford. 71(1): 135-158.

[36] Schoors, K., & Van Der Tol, B. (2002) Foreign direct investment spillovers within and between sectors: Evidence from Hungarian data. Working Papers of Faculty of Economics and Business Administration, Ghent University. 157.

[37] Sembenelli, A. and Siotis, G. (2005) Foreign Direct Investment, Competitive Pressure, and Spillovers: An Empirical Analysis of Spanish Firm Level Data. CEPR Discussion Paper No. 4903.

[38] Sjoholm, F. (1999) Technology gap, competition and externalities from direct foreign investment: Evidence from establishment data, Journal of Development Studies, Taylor & Francis Journals. 36(1): 53-73.

[39] Takii, S. and Narjoko, D. A. (2012) FDI Forward Linkage Effect and Local Input Procurement- Evidence from Indonesian Manufacturing-’, in Hahn, C. H. And D. A. Narjoko (eds.), Dynamics of Firm Selection Process in Globalized Economies. ERIA Research Project Report 2011. 111-146.

[40] Tamura, S., Sheehan, J.; Martinez, C and Kergroach, S. (2005) Promoting Innovation in Services, Enhancing the Performance of the Services Sector. OCDE, Paris.

[41] Wang, J. and Blomström, M. (1992) Foreign Investment and Technology Transfer: A Simple Model. European Economic Review. 36: 137-155.

[42] Windmeijer, F. (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics. 126(1): 25-51.

[43] Wooldridge, J. M. (2009) Introductory Econometrics: A Modern Approach. Boston, MA: South-Western College Publishing.