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Does FDI Spur Productivity, Knowledge Sourcing and Innovation by Incumbent Firms? Evidence from Manufacturing Industry in Estonia
Author(s) -
Vahter Priit
Publication year - 2011
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2011.01379.x
Subject(s) - foreign direct investment , productivity , panel data , manufacturing , absorptive capacity , business , manufacturing sector , international economics , international trade , economics , industrial organization , labour economics , marketing , macroeconomics , econometrics
Does FDI affect knowledge sourcing activities, innovation and productivity growth of domestic firms? This study employs firm‐level panel data from Estonia’s manufacturing sector to investigate different channels through which FDI affects domestic firms. Based on instrumental variables approach, I find no evidence of an effect of FDI entry on local incumbents’ short‐term productivity growth. However, there is positive association between the entry of FDI and the more direct measures of spillovers. FDI inflow to a sector is associated with more knowledge flows to domestic firms and increase in their innovation activities.