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Understanding FDI Spillovers in the presence of GVCs (English)

Does a global value chain framework provide additional insights into the question of whether foreign direct investment is beneficial to host countries? The literature has found mixed results on whether foreign direct investment provides positive spillovers over and above mere financing. But the studies have focused on one country, or studies with an international focus tend to abstract from intersectoral linkages. By examining this question in the context of global value chains, this paper provides a much better understanding of the association as well as general validity. It harmonizes three major panel data sets: 1) the Multi-Regional Input-Output table for international input-output linkages, 2) the FDI Markets reports for greenfield foreign direct investment, and 3) the World Bank Enterprise Surveys for firm performance measures. The paper produces a rich panel data set from 2011 to 2017. The findings show that foreign direct investment has a positive effect on labor productivity in sectors and firms within those sectors. Moreover, global value chain participation plays a key role in shaping the foreign direct investment effects. Sectors with lower global value chain participation benefit more from foreign direct investment: doubling the foreign direct investment in those sectors results in an 8 percent productivity gain. The positive effect seems to be due to the increased competition created by foreign direct investment. Foreign direct investment spillovers also take place through domestic and foreign backward linkages, which means that foreign direct investment also has positive inter-sector and cross-border spillovers.

Details

  • Author

    Mercer-Blackman,Valerie Anne, Xiang,Wei, Khan,Fahad

  • Document Date

    2021/04/28

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS9645

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2021/04/28

  • Disclosure Status

    Disclosed

  • Doc Name

    Understanding FDI Spillovers in the presence of GVCs

  • Keywords

    labor productivity; sector classification; input-output table; Research Support; balance of payment statistic; foreign direct investment; global value chain; panel data set; input output table; domestic value added; foreign value added; share of trade; standard normal distribution; special economic zone; number of jobs; unit of measurement; amount of investment; effect of price; global financial crisis; Merger and Acquisitions; IS Building; total factor productivity; classification of sectors; Architecture and Engineering; labor productivity increase; positive spillover effect; impact on productivity; Oil & Gas; Oil and Gas; backward linkages; downstream sector; conceptual framework; fixed effect; production process; manufacturing sector; positive correlation; productivity growth; market datum; empirical result; standard error; forward linkages; foreign country; firm level; robustness check; total output; international production; sensitivity analysis; Real estate; advanced technology; domestic supplier; country variation; advanced economy; foreign financing; firm productivity; primary sector; empirical evidence; tax incentive; intermediate imports; Job Creation; cross-border spillovers; destination country; financial flow; literature review; intermediate input; empirical analysis; trade growth; summary statistic; domestic input; domestic competition; Industrial Policies; electrical equipment; statistical significance; chemical product; Industrial Policy; recipient countries; home countries; home country; production sharing; new way; gross output; global trade; international market; lower rate; Indirect Exposure; other sectors; investment policy; direct participation; global export; production function; econometric analysis; new technology; political stability; global trend; domestic plant; existing asset; global economy; investment opportunities; economic recovery; use plant; management experience; steel sector; Technology Transfer; market economy; intraregional trade; transmission mechanism; government subsidy; production cost; comparative advantage; market size; regression equation; capital-intensive sector; construction sector; transport equipment; water transport; negative effect; business service; foreign supplier; retail trade; development policy; open access; inland transport; firm performance; data sample; regression results; explanatory variable; lag effect; increased competition; oil extraction; real effect; independent variable; productivity gain; international focus; project size; foreign market; domestic competitor; production model; improved technologies; greenfield investment; capital infusion; productivity spillovers; cross-border effects; production line; firm-level analysis; international input; local economy; foreign good; local products; instrumental variable; simple average; introducing competition; mean value; available data; data limitation; small country; source country; national account

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Citation

Mercer-Blackman,Valerie Anne Xiang,Wei Khan,Fahad

Understanding FDI Spillovers in the presence of GVCs (English). Policy Research working paper,no. WPS 9645 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/149331619640987210/Understanding-FDI-Spillovers-in-the-presence-of-GVCs