FDI INTERNATIONAL R&D AND KNOWLEDGE SPILLOVERS
Haskel, J.E., Pereira, S., Slaughter, M., 2007. Does inward foreign direct investment boost the productivity
of domestic firms? Review of Economics and Statistics 89 2), 482–496.
Are there productivity spillovers from FDI to domestic firms? Positive correlation between foreign affiliate
share in a plant industry and plant’s TFP.
Data: 1973-1992, ARD panel, establishment level. UK’s manufacturing.
There is growing evidence of a sharp increase in foreign direct investment. The policy concern is then
whether is necessary to provide public incentives to attract FDI. These incentives would be justified only if
social return from FDI are higher than private returns. What is needed then is an evaluation of FDI’s
spillovers that could enables policy makers to adjust incentives in a proper way. To do this the authors
regress domestic-plant level output on domestic-plant-level inputs, measures of foreign presence and
controls. A good point that is made in the paper is controlling for competition: pro-competitive effect
should be distinguished from spillover effects since the welfare implications behind them are different. One
of the main important result of the paper is that per-job value of spillovers are less than per-job incentives
governments have granted( the analysis however, is restricted to recent high profile cases of granting).
Javorcik, B. S. (2004). Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In
Search of Spillovers through Backward Linkages. American Economic Review 94(3), 605-627.
Inconsistent evidence of knowledge spillovers effects. In particular, much of the literature has focused on
horizontal spillovers (Estimation of TFP after an increase in FDI in the same industry; is it a real knowledge
spillover effect of is a competitive effect?). In particular, if more productive foreign firms enter the market,
local firms could see their market’s shares reduced. This imply lower productivity since fixed costs are
spread over a smaller market. In this paper, focus on vertical spillovers. Additional focus on the
determinants of spillovers: effect of ownership on benefits from FDI( Previous evidence that indicates that
if there is fully foreign ownership, firms has less prone to buy input from the local market)
Data: Annual enterprise survey conducted in Lithuania, unbalanced panel 1996-2000. Transition Economy.
Manufacturing firms.
Analysis of Horizontal, Backward and Forward spillovers. Evidence only about the first two. With lagged
variables, stronger effect. In order to isolate the knowledge spillover effect, the author control for industry
concentration (Competition effect) and demand for intermediates (Economies of scale effect in the
backward and forward case). Further analysis on the role of ownership (Backward linkages). Positive impact
on domestic firm output and the presence of partially foreign owned firms in the downstream market.
No in the case of full foreign ownership.
Some negative effects of forward measures: too highly specialized, higher costs to bear.
Method: semiparametric approach of Olley and Peaks.
Alcacer J. and Chung W. (2007). Location strategies and knowledge spillovers. Management Science,
53(5), 760-776.
Are firms considering only gains from inward knowledge spillovers? Analysis of firm’s location choice.
Data: first-time entrant into U.S 1985-1994 greenfield investment.
Two streams of literature dealing with knowledge spillovers. The economic side analysis the existence and
the transmission of such spillovers (firms choice exogenous) while international business examine firms
decisions but not a specific focus on knowledge spillovers. Two forces are present: maximization of
potential spillovers, minimization of spillovers leakages.
Results shows that areas with any level of academic activity attract first-time entrants. On average
disinterest towards areas with government and industrial technical activity. Role of firm heterogeneity: less
technologically advanced prefers areas with any level of academic and high level of industrial. More
advanced prefer only high level of academic activity.
In addition, good point of the paper: considering location choice endogenous (potential to benefit from
spillovers). Further research needed to investigate the other two rationales behind agglomeration
economies: Availability of skilled labor and of specialized suppliers.
Singh, J. (2007). Asymmetry of knowledge spillovers between MNCs and host country firms. Journal of
International Business Studies, 38(5), 764-786.
Examination of knowledge inflows and knowledge outflows resulting from foreign multinational companies
investing in 30 technologically advanced countries using patent citations. Additional micro-level analysis of
the mechanism behind this flow: personnel flow.
Two streams of literature explaining knowledge flows between MNCs and host countries. International
economics focus on the role of MNCs in enabling technology transfer to host countries. International
business focus on MNC investing to access knowledge from host countries.
Why knowledge outflows? Most of the subsidiaries focus on incremental adaptation of their parent firm’s
products. Most are listening posts. Possibility to leverage their globally innovation network and
complementary capabilities. Strategic consideration of MNC: set up a subsidiary only if you are lagging.
Interesting point of hypothesis 2: domestic firms that lag far behind might not even have the minimum
knowledge needed to absorb further knowledge. In addition, they show that the asymmetry of inter-firm
labor movements appears to mimic the pattern of knowledge flows. Not really an analysis of welfare
effects. Last section contains all the possibilities that makes knowledge outflows still beneficial for domestic
firms and for consumers.
Data: patent citations. Two problems: citations might be included for strategic reasons, patent examiner
could add citations.
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.
Has the U.S R&D stock a stronger impact on the TFP of UK firms with more inventors in the U.S than the
other UK firms?
Use of a conventional Cobb-Douglas production function for firms in the UK, augmented with industry-level
domestic and foreign external knowledge stocks. The idea is to study whether the foreign external
knowledge stock has an impact on productivity depending on the geographic location of the firm’s
innovative activity. Strong assumptions: the unobservable firm component is assumed to be uncorrelated
with the location of innovative activity; firms did not locate R&D in the U.S in anticipation of positive shocks
to productivity; location of firms’ innovative activity may be proxying for other nonlocational activities
(Absorptive capacity) or non-innovation aspects (Sales in the U.S). Results: UK firms with a stronger
inventor presence in the U.S benefit disproportionately from U.S R&D spillovers; especially if they are active
in an industry with strong U.S R&D growth. String effect in sectors where UK has most to learn.
Data: panel of 188 manufacturing firms 1990-2000. Shares of patents whose inventor is located in the
U.S/UK from 1975-1989.