Economics of Transition, 2010, FDI EU

Economics of Transition
Volume 18(3) 2010, 487511

DOI: 10.1111/j.1468-0351.2009.00379.x
FDI spillovers in new EU

member states
Which firms create them and which firms
really benefit?1
Marcella Nicolini* and Laura Resmini**
*Fondazione Eni Enrico Mattei (FEEM), Corso Magenta, 63 I-20100, Milano, Italy.
E-mail: marcella.nicolini@feem.it
**Universita` della Valle dAosta, Faculty of Political Science and International Relations, Loc.
Grand Chemin 73/75 I-11020 Saint Christophe, Aosta, Italy; and ISLA, Bocconi University,
Milan, Italy. E-mail: laura.resmini@unibocconi.it
Abstract
Using an unbalanced panel of firm-level data in Bulgaria, Poland and Romania,
we examine the impact of foreign firms on domestic firms productivity. In particular, we try to answer the following research questions: (1) Are there any spillover effects of foreign direct investments (FDI), and if so, are they positive or
negative? (2) Are spillover effects more likely to occur within or across sectors?
(3) Are the existence, the direction and the magnitude of spillovers conditioned
by sector and firm-specific characteristics? Our findings show that FDI spillovers
exist both within and across sectors. The former arise when foreign firms operate
in labour-intensive sectors, while the latter occur when foreign firms operate in
high-tech sectors. Moreover, we find that domestic firm size conditions the
exploitation of FDI spillovers even after controlling for absorptive capacity. We
Received: February 5, 2007; Acceptance: July 13, 2009

1
We are grateful to participants at the E.A.R.I.E. and ETSG 2006 conferences in Amsterdam and Vienna,
and the A.I.S.Re 2006 conference in Pisa (Italy) for their observations and suggestions on earlier drafts of this
article. Our gratitude also goes to the anonymous referees, who provided helpful comments. This research
has benefited from financial support through the European Commission VI framework programme (Ref. no.
28818).
2010 The Authors

Journal compilation 2010 The European Bank for Reconstruction and Development.
Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA
488
Nicolini and Resmini
also detect a great deal of heterogeneity across countries consistent with the technology gap hypothesis.
JEL classifications: F23, P31, P52.
Keywords: Foreign direct investment, transition countries, spillovers.
1. Introduction
In recent decades, many governments in developing and transition countries
have offered significant incentives to attract foreign direct investments (FDI),
being motivated to do so by expectations of possible spillover benefits. This
strong belief in the positive effects of FDI, however, does not receive support
from the empirical evidence. Recent surveys on this topic (Gorg and Greenaway,
2004; Alfaro and Rodriguez-Clare, 2004; Glass et al., 2001) suggest that the lack
of consistency in the empirical literature on FDI-induced spillovers depends on
the estimation techniques adopted by researchers (cross-section vs. panel data,
industry-data vs. firm-level data) and the use of different measures of foreign
presence in the host countries. In this paper, we argue that other factors, independent of data characteristics and methodologies, may affect the existence, the
direction, and the magnitude of spillover effects, as recently argued also by
Lipsey and Sjoholm (2005). By using the same methodology and comparable
data, we examine intra- and inter-sectoral spillovers in the context of Bulgaria,
Poland and Romania and demonstrate how the results vary depending on the
country analysed. While previous studies on this topic have focused on whether
FDI spillovers exist, this paper conducts comprehensive discussion on which
host country is affected by inward FDI, what the impact is on that country, and
whether and to what extent FDI spillovers are conditioned by firms characteristics, such as the technology intensity of foreign affiliates products and the size
of the indigenous firms.
We find evidence of positive intra- and inter-sectoral FDI spillovers, which are
on average exploited by indigenous firms according to their absorptive capacity.
These results change substantially when we consider the technology intensity of
foreign firms and the size of the indigenous ones. A great deal of heterogeneity
among countries is also detected.
The paper is organized as follows. The next section reviews the main theoretical
and empirical literature on FDI productivity spillovers, dealing in particular with
studies focused on the evidence from Central and Eastern European countries. Section 3 describes the data source and the empirical strategy that we adopted to
achieve our research objectives. Section 4 discusses the results of our estimations
and Section 5 summarizes our conclusions.
2010 The Authors
Journal compilation 2010 The European Bank for Reconstruction and Development
FDI Spillovers in New EU Member States
489
2. FDI productivity spillovers in the theoretical and empirical

literature
The concept of FDI spillovers embodies the idea that multi-national enterprises
(MNEs) own intangible assets, such as a superior technology,2 which, given their
public goods nature, can be transmitted to indigenous firms thereby increasing
their productivity levels. Therefore, the spread of productivity spillovers is a matter
of externalities being transmitted from foreign to domestic firms through several
channels. In particular, foreign firms can help local suppliers and/or clients to
improve the quality, speed and reliability of delivery and/or processing techniques
by providing technical and financial assistance (Hirschman, 1958; Rodriguez-Clare,
1996; Markusen and Venables, 1999). Foreign entry may also increase competition
in the domestic market, thereby stimulating local firms to use resources more efficiently and adopt new technologies to maintain their market shares. Local competitors may also profit from the demonstration effect in management and production
techniques, while the mobility of workers trained by foreign firms may facilitate
not only the access to new technologies but also imitation of the technologies in
question (Fosfuri et al., 2001; Mansfield and Romeo, 1980; Dunning, 1993).3 The
benefits spilling over to domestic firms through closer client/supplier relationships
are usually referred to as vertical spillovers or inter-sectoral spillovers, because they
entail firms operating at a different stage of the production chain, while externalities accruing to local competitors are also called horizontal or intra-sectoral spillovers since they entail firms operating at the same stage of the production chain.
Generally speaking, spillovers of the former kind involve flows of generic knowledge, while the latter concern flows of specific knowledge (Kugler, 2006). The theoretical literature on FDI suggests that, whereas foreign firms can derive advantages
from generic knowledge diffusion among downstream clients and upstream suppliers, they may be damaged by allowing specific knowledge to be appropriable by
local competitors, because this implies dissipation of their specific advantages.
Therefore, foreign firms will try to minimize outflows of specific knowledge while
encouraging outflows of generic knowledge to local clients and suppliers.
This theoretical idea of almost automatic and effective benefits from FDI is not
confirmed by the empirical evidence, which instead suggests that FDI-induced productivity spillovers are neither exclusively nor necessarily positive. Yet the empirical literature on FDI spillovers, recently summarized in a number of survey papers
(Alfaro and Rodriguez-Clare, 2004; Gorg and Greenaway, 2004; Gorg and Strobl,
2001; Glass et al., 2001; Lipsey and Sjoholm, 2005; UN/ECE, 2001) argues that the
2
According to Blomstrom et al. (2001), the concept of technology should be interpreted in a broad sense
which includes product, process and distribution technology, as well as management and marketing skills.
3
Of course, foreign firms may also generate negative effects for domestic firms, such as tougher competition
in the final markets as well as in the source (including labour) ones. It is widely believed, however, that positive effects outweigh negative ones (UNCTAD, 2001).
2010 The Authors
490
effects of foreign investments have been neutral or negative or, in the best cases,
unclear, especially in the case of developing and transition countries.4
With regard to the latter, analysis of the impact of foreign firms on domestic
firms productivity is usually carried out using firm-level panel data. Table 1 summarizes the main results. As mentioned above, there is weak support for FDI spillovers to domestic firms, either within the same sector or across vertically linked
sectors. Nevertheless, inter-sectoral spillovers seem to be more important than horizontal spillovers (Altomonte and Resmini, 2002; Damijan et al., 2003b; Merlevede
and Schoors, 2007; Schoors and van der Tol, 2002). There are several reasons for
these unsatisfactory results. First, MNEs may be very effective in minimizing horizontal spillovers, as suggested by the conventional wisdom. Second, MNEs in transition countries may have a low propensity to source locally, given the low quality
of intermediate inputs produced in those countries, especially at the beginning of
the transition phase. Therefore, there is less scope for vertical linkages between foreign and domestic firms. This consideration is further reinforced by the fact that
most negative spillovers are detected in the early 1990s, while the number of negative and significant relationships between foreign and domestic firms decreases
when more recent periods of time are considered. This suggests that progress in
industry restructuring may have made the transmission of productivity spillovers
from FDI to indigenous firms more likely.5
The empirical evidence thus suggests that while positive effects from FDI are
likely, they are far from automatic; they should therefore be demonstrated rather
than assumed. This consideration shifts the debate on FDI spillovers from a theoretical perspective to a more technical and empirical one which helps in gathering
fresh empirical evidence as a new basis for future theoretical studies.
3. Data and methodology

The data used in this study constitute an unbalanced panel with annual information on more than 40,000 domestic manufacturing firms and about 10,000 foreign
owned firms operating in three transition countries, namely Bulgaria, Poland, and
Romania during the period from 1998 to 2003. Although these countries started
with very similar technological levels and managerial skills, their transition to a
market economy has followed very different paths: Poland became a member of
the European Union in 2004, while Bulgaria and Romania had to wait another three
4
More positive effects are found in the case of industrialized countries. See Haskel et al. (2007) and Liu et al.
(2000) on UK, Keller and Yeaple (2003) on the USA, and Jabbour and Mucchielli (2005) on France.
5
Another reason may be the empirical approach applied by studies, which usually include measures for
both backward and forward linkages in the same regression. These two measures, however, are strongly correlated, reflecting the fact that manufacturing sectors are very often either the suppliers or the clients of
many other manufacturing sectors, and that client/supplier relationships are often of the same intensity.
This implies that the results may have been affected by multicollinearity.
2010 The Authors

2010 The Authors

19982000
19952001
19962001
HU
RO
19951999
19961900
19931902
19982003
19931996
19931997
19941998
19951998
19931997
19901998
19971998
19931997
19951999
19931997
Period
CZ
PL
8 CEECs
CZ
BG, PL, RO
PL
HU
Russia
10 CEECs
BG, CZ, HU,
PL, RO
ES
LI
PL
Russia, UK,
PL, RO
CZ, RO
Country
?
?
?/+
+
?
)
?
)
)
+ RO; ?/) elsewhere
+
)/?/)
)
+
+
+ CZ, PL, RO, SK
+ CZ, PL; ? elsewhere
Intra-sector
Notes: CEEC, Central and Eastern European countries; FDI, foreign direct investments.
Smarzynska-Javorcik
and Spatareanu (2005)
Gorg et al. (2006)
Merlevede and Schoors (2007)
Sinani and Meyer (2004)

Smarzynska-Javorcik (2004)
Pawlik (2005)
Tytell and Yudaeva (2007)
Djankov and Hoekman (2000)

Zukowska-Gagelmann (2000)
Damijan et al. (2003a)
Kinoshita (2001)
Konings (2001)
Altomonte and Resmini (2002)
Schoors and van der Tol (2002)
Yudaeva et al. (2003)
Damijan et al. (2003b)
Torlak (2004)
Author(s)
+
+
)
+ CZ, PL, SK
Inter-sector
(backward)
Table 1. Summary of representative studies on FDI spillovers in CEECs
+
)
)
Inter-sector
(forward)
491
492
years before joining the EU. The development of the transition phase has affected
the inflows of FDI (Resmini, 2000), which have responded positively to the structural reforms undertaken in Poland and negatively to stagnation of the reform process in Bulgaria and Romania. Consequently, Poland has rapidly become one of the
most important FDI recipients in the area, while Bulgaria and Romania have failed
to attract a substantial stock of foreign capital. Given our research objectives, these
and other socioeconomic characteristics make comparisons among these three
countries of considerable interest.
The data are taken from the Amadeus database published by Bureau Van Djik,
which besides standard financial information gives details on several qualitative
variables, such as ownership characteristics, industry classification, and geographical location within countries.6 Firms with a share of foreign ownership greater than
10 percent have been classified as foreign affiliates, using the definition provided
by the OECD and the IMF. All other firms with a percentage of foreign ownership
below 10 per cent have been classified as domestic. Although it seems common
practice to classify a firm as domestic even in the absence of any information on the
nationality of the ownership (Peri and Urban, 2006), we prefer to adopt a more
restrictive strategy to avoid overestimating the possible impact of foreign firms on
domestic firm performance. We consequently excluded from the sample all firms
whose ownership could not be properly identified.7
Table 2 summarizes the most important facts and figures concerning domestic
and foreign firms in the above-mentioned countries. Important insights can be
gained from how the three countries differ in terms of the characteristics of both
foreign and indigenous firms operating within their boundaries.
First to be noted is that most of the FDI undertaken in Bulgaria, Poland and
Romania pertains to low-tech manufacturing sectors.8 In 2003, the share of this kind
of FDI ranged from 68 percent in Poland to 87 percent in Romania. This share was
more or less stable over time and did not differ substantially from that of domestic
firms, at least as far as Romania is concerned. Although this fact may be a direct
consequence of the international specialization of both source and destination countries, it has important analytical implications. In fact, the large presence of foreign
6
Amadeus contains information on each companys ownership structure, including the name of the owners,
their country of origin, their own ownership shares and the date when the information was updated. Since
the database is released annually, it is possible to trace the ownership structure from the beginning to the
end of the considered period. In so doing, we used six different releases, starting from 1 January 1999. We
assumed that the ownership information included in this release was that corresponding to 1998. We then
analysed all subsequent releases until 1 January 2004, updating the ownership information with the corresponding new information and carrying the initial ownership status over to future years if no updates
appeared in the database. In the case of contrasting or missing information, we dropped the firm from the
database.
7
Because of this restrictive strategy, our sample did not cover the whole population of indigenous and foreign firms operating in each country and sector included in the analysis. Nevertheless, it was able to reproduce country dynamics without large biases, as is shown in Table A1 in the appendix.
8
See the appendix for the classification of low- and high-tech manufacturing sectors (Table A2).
2010 The Authors

493
Table 2. Domestic and foreign firms in the transition countries

Bulgaria
domestic
2003
Number of firms:
All sample
2.623
Low-tech sectors
1.977
High-tech sectors
646
Estimated productivity index (2003):
All sample
2,771
Low-tech sectors
2,707
High-tech sectors
2,980
1998
Number of firms:
All sample
799
Low-tech sectors
572
High-tech sectors
227
Estimated productivity index (1998):
All sample
2,277
Low-tech sectors
2,233
High-tech sectors
2,431
foreign
Poland
domestic
foreign
Romania
domestic
foreign
1.159
979
180
4.526
3.304
1.222
1.502
1.027
475
33.970
30.236
3.734
7.165
6.206
959
3,044
2,844
3,724
3,987
4,043
3,787
4,061
3,764
4,577
1,466
1,427
1,762
1,874
1,855
1,995
199
157
42
3.125
2.257
868
1.152
806
346
26.877
24.012
2.865
3.214
2.770
444
2,428
2,305
3,148
4,098
4,160
3,892
4,044
3,502
4,751
1,373
1,338
1,661
1,652
1,621
1,830
Notes: Own calculations. Productivity indexes have been computed as simple means of TFP (in log form) of
firms. TFP at firm level has been estimated using Olley and Pakess (1996) semi-parametric procedure, as
described in the text. TFP, total factor productivity.
firms in traditional labour-intensive sectors such as textiles, clothing, footwear

and furniture may reduce the scope for technology transfer from parent houses to
foreign affiliates. Consequently, spillovers may be small or non-existent, regardless
of the ability of indigenous firms to reap them.
Average total factor productivity (TFP) levels vary considerably across countries.
Regardless of their ownership, firms located in Poland are characterized by the highest TFP, while firms located in Romania exhibited the lowest average productivity
levels both in 1998 and 2003. Last but not least, it is interesting to note that although
foreign firms are on average more productive than indigenous firms, the productivity gap with domestic firms is sometimes very narrow or non-existent. This is the case
of Poland where domestic firms in low-tech sectors were more productive than foreign ones and, somewhat surprisingly, Bulgaria, whose indigenous firms operating
in low-tech sectors show productivity levels comparable with those of foreign firms.
2010 The Authors
494
The dynamics over time differ across countries. In Poland, indigenous firms
were unable to improve their productivity levels, while foreign firms acquired a
certain amount of efficiency. In Bulgaria, both kinds of firms increased their productivity levels, but foreign firms grew especially in high-tech sectors, while indigenous firms did so in low-tech sectors. Finally, in Romania, foreign firms almost
doubled their productivity levels, further increasing the gap with domestic firms.
Given this picture, we wondered whether FDI-induced spillovers occurred and
were to the benefit of indigenous firms.
3.1 The empirical strategy

To investigate the above-mentioned research questions, we first generated an
appropriate measure for local firms TFP. For this purpose, firms were assumed to
use the following CobbDouglas production function:
yit a0 al lit am mit ak kit xit eit ;
where yit is the log of output from plant i at time t, lit, mit and kit are the logs of
labour, intermediate and capital input, respectively, and xit and eit are unobservable productivity disturbances.9 While xit is known to the firm when it decides
how much labour and materials to use, eit is not known.
Following the approach most commonly used in the recent literature on the
topic, we estimated Equation (1) by applying the semi-parametric estimation technique developed by Olley and Pakes (1996). This technique takes into account the
simultaneity bias due to the endogeneity of the firms input selection, which may
arise if a firm responds to unobservable productivity shocks by adjusting its input
choice. This would imply a correlation between the inputs and the error term which
biases traditional OLS coefficient estimates. Olley and Pakes suggest that this problem can be solved by using the firms investment decisions as a proxy for unobserved productivity shock.10 By applying this procedure on a sectoral base, we
9
TFP at firm level was estimated using turnover as a proxy for total output, the stock of tangible fixed assets
as a proxy for physical capital, material costs and the number of employees. We lacked both industry- and
firm-specific deflators, so that financial data are expressed in thousands of US dollars. This implies that the
resulting productivity estimates still capture price and demand shocks, which are likely to be correlated with
changes in the operating environment, thus invalidating any evaluation of welfare implications (De Loecker,
2007). However, Mairesse and Jaumandreu (2005) demonstrate that the estimated coefficients of a simple
CobbDouglas production function vary more with the estimation procedures than with the particular specification of the production function equation, the latter being a real output function, a revenue function
deflated either by individual prices or industry prices, and a not deflated revenue function. In conclusion,
the omitted variable bias claimed by De Loecker (2007) and other scholars seems to be negligible. For this
reason, we used a not deflated revenue function to estimate plant level TFP, while controlling for the impact
of price shocks on TFP levels in the second step of our empirical analysis, as explained later.
10
This entailed that all firms with zero or negative investment could not be included in the sample. Alternatively, Levinsohn and Petrin (2003) suggest that material inputs may be used as a proxy for the firms reaction to productivity shocks.
2010 The Authors

495
obtained sector-specific input intensities.11 We then fitted Equation (1) and constructed the individual error terms uit, which were the logs of our estimated plant
TFP.12 We used this variable to analyse the existence and the magnitude of FDI
spillovers over the period 19982003. More specifically, we tested whether the
observed indigenous firms productivity was a function of the FDI presence and
other characteristics at industry level.
In so doing, we assumed that geographical proximity matters, as suggested by
several previous studies (Keller, 2002; Peri and Urban, 2006). We therefore measured all variables at region level. To obtain a suitable FDI-presence variable, we
first calculated the share of foreign firm employment in total employment of sector
s, region r at time t)1 (fdisrt)1).13 This traditional measure of FDI density was then
interacted with factors able to explain both the degree of interdependence of
manufacturing sectors and the nature that is, source for inputs or destination of
output of such interdependence. Both these characteristics can be inferred from
inputoutput tables which suggest that each manufacturing sector is at the same
time both a supplier (S) and a customer (C) of several manufacturing sectors, itself
included.14 We thus ended up with the following four measures for FDI presence
indicating the existence of four possible sources of spillovers:
X
INTER SPILLSsrt
ask fdikrt1 ;
2
k6s
INTRA SPILLSsrt ass fdisrt1 ;

INTER SPILLCsrt
xsk fdikrt1 ;
k6s
11
Some sectors, namely manufacturing of refined petroleum products (NACE 23), recycling (NACE 37) and
Tobacco (NACE 16) were excluded because the small number of firms operating in these sectors made it
impossible to apply the Olley and Pakes procedure.
12
The advantage of this estimation procedure is that it enabled us to consider also information on productivity of firms active in period t but with zero investments. In fact, omitting plants with zero investment
would have meant omitting plants with low or declining productivities, thus introducing a sample bias in
the next step, i.e. the one devoted to exploring the existence and the magnitude of FDI spillovers on indigenous firms.
13
To approximate total employment at sectoral level better, all firms included in the sample were considered regardless of the (in)completeness of information on the ownership structure.
14
We used the latest available national inputoutput tables at two digit level for each country. We therefore
could not exclude that supplier and client relationships might occur within sectors as well. This concept can
be clarified if we consider two firms, one producing cotton fibres and the other producing cotton fabrics.
Both firms belong to the same manufacturing sector, i.e. textiles (NACE 17), although they produce at different stages of the production chain.
2010 The Authors

496
INTRA SPILLCsrt xss fdiisrt1 :
Equations (2 and 4) measure foreign firm penetration in industries from which

industry is domestic firms source their inputs and to which they sell their output,
thus accounting for forward and backward spillovers respectively within region r.
ask(xsk) is the share of sector k (s) output that is sold to sector s (k), as indicated by
the inputoutput tables. Equations (3) and (5) have the same meaning as the corresponding inter-sectoral spillover equations but they refer to foreign firms operating
in the same sector (and region) as indigenous firms.15 While the coefficients taken
from the inputoutput tables remain fixed over time, the FDI-presence variable
may change. Hence, the variables capturing inter- and intra-sectoral spillovers
within each region are time-varying sector-specific variables.
To control for possible observable factors that may affect productivity growth
trajectories, we extended this basic framework by including other regressors, which
helped us capture firm, sector and time variation in TFP. This vector comprised the
size of each domestic firm (defined as the number of employees, in the log form), a
proxy for the technological capability of indigenous firms, and a product market
competition index at sectoral level.16 The last two variables warrant further explanation.
A number of previous studies have stressed the importance of the ability of
indigenous firms to absorb the new technology brought by foreign firms (Cantwell,
1993; Wang and Blomstrom, 1992; Blomstrom and Kokko, 1997). We proxied each
indigenous firms ability to reap FDI-induced spillovers with its productivity gap
with respect to the sample average. We argue that indigenous firms with a productivity level above the sample average possess sufficient technological competencies
to exploit FDI-induced spillovers to the full, while indigenous firms with productivity levels below the sample average do not possess such a capacity.17 We then
created a firm-specific, time-varying dummy variable (GAP) taking the value of 1 if
firm is TFP was below the sample average and 0 otherwise. This dummy variable
was interacted with the FDI spillover variables in order directly to identify the
impact of foreign firms on indigenous firms with a low or a high level of absorptive
capacity respectively.
Nor is the idea that the degree of competition may affect firms productivity
new in the literature, both theoretical and empirical (Markusen and Venables, 1999;
15
We are aware that this specification prevented us from fully capturing intra-sectoral spillovers, which also
stem from foreign activity taking place at the same production stage as domestic firms. These spillovers
derive from imitation and/or demonstration effects, as well as from personnel training and mobility. However, as we stated in Section 2, it is likely that multinational firms try to minimize such spillovers because
they involve the transmission of specific knowledge to their local competitors.
16
All explanatory variables were lagged one period to avoid endogeneity problems.
17
Foreign firms were excluded from the sample average calculation in order not to introduce any multicollinearity in the estimations.
2010 The Authors
497
Blomstrom et al., 2001; Haskel et al., 2007; Sinani and Meyer, 2004). Competition
may stimulate firms to use the existing technology more efficiently to maintain their
market shares. However, it may also be detrimental to firms if the entry of a new
competitor forces incumbent firms to move up their average cost curves. Both these
effects can be a direct consequence of the entry of a MNE. Therefore, without a
direct control on competition, the coefficients of spillover variables may pick up
both technological spillovers and pro-competitive effects. To obtain a measure as
close to technological spillovers as possible, we decided to control for the degree of
competition faced by firms in their respective product markets. The variable that
we included in the set of the explanatory variables (MARKUP) was computed at
sectoral level as operational turnover minus employment and material costs over
operational turnover. Its interpretation was straightforward: the greater the difference between revenues and variable costs, the greater the power of firms to set
prices, and the less competitive is the local sector s, considered at region level.18
Given the opposite effects that competition may exert on firm productivity, we
could not predict its sign.
As we are considering transition countries, it is important to account for timevarying industry and region characteristics. Given data constraints, we used as controls a set of time and region interaction dummies and a set of time and industry
interaction dummies. We also included firm fixed effects in the estimates, to control
for unobserved characteristics at firm level.
Our baseline specification therefore consisted in the following two equations:
TFPisrt1 a0 b1 INTER SPILLSsrt b2 INTRA SPILLSsrt b3 GAPit INTER
SPILLSsrt b4 GAPit INTRA SPILLSsrt b5 MARKUPsrt b6 EMPLisrt
at ar at as ai eisrt ;
6
TFPisrt1 a0 b1 INTER SPILLCsrt b2 INTRA SPILLCsrt b3 GAPit INTER
SPILLCsrt b4 GAPit INTRA SPILLCsrt b5 MARKUPsrt b6 EMPLisrt
at ar at as ai eisrt :
7
Equation (6) accounts for possible spillover effects generated by multinational
firms which sell their products to local clients, while Equation (7) captures spillover
effects exerted by multinational enterprises sourcing intermediates from local suppliers. This estimation approach helped us to make separate evaluation of the magnitude of, respectively, forward and backward linkages both across but also within
sectors. Therefore, the total effect that foreign firms may exert on domestic firms
18
This index is a proxy for the Lerner index. It therefore ranges from zero (perfect competition) to one
(monopoly).
2010 The Authors

498
productivity depends on the sign and the magnitude of the estimated bs in equation (6) and the corresponding cs in equation (7).19 In particular, if both the bs and
the cs are positive and statistically significant, we have evidence of spillovers generated through both forward and backward linkages, either within or across manufacturing sectors. Instead, if only the bs (cs) are positive and statistically significant,
this indicates that domestic firms are able to reap spillovers only from their foreign
supplier (client), provided that b >|c|(c >|b|).
Separate analyses were conducted for the three countries included in the database.
Regressions were run using panel fixed effect techniques, since these enabled us to
accommodate unobservable heterogeneity at firm, industry, region and time level.20
4. Estimation results
In this section, we present and discuss the empirical estimates of the impact of FDIinduced spillovers on domestic firms TFP. We first focus on the estimations of
equations (6) and (7) and then discuss how, whether, and to what extent general
results are conditioned by two factors, namely the concentration of FDI in traditional labour-intensive manufacturing sectors, and the size of the indigenous firms.
4.1 The baseline model

Table 3 shows the results of estimating equations (6) and (7) for Bulgaria, Poland
and Romania. Overall, the results confirm that the opportunity to reap FDI spillovers strongly depends on the technological competence of indigenous firms. Low
levels of absorptive capacity, in fact, prevent indigenous firms from exploiting any
kind of spillovers, as indicated by the coefficients of the spillover variables interacted with the GAP variables, which are negative and significant at 1 percent level
in all specifications.21 This indicates that, within each country, the technological
delay between foreign and less productive indigenous firms is so long that it
19
This estimation strategy is quite different from that used in previous studies, where similar backward and
forward measures for spillovers have been simultaneously included in the same equation (Smarzynska-Javorcik, 2004; Schoors and van der Tol, 2002). However, we thought it the best way to proceed, given the high
levels of pairwise correlation that characterize spillover variables (see Table A3 in the appendix).
20
We obviously estimated the above-mentioned regression equations by using both fixed and random effect
estimation techniques. Although the sign and the magnitude of the spillover variables were almost similar
in both specifications, random effects were not supported by statistics. The results are available upon
request.
21
Given the way in which the spillover variables were constructed, the coefficients of the interacted variables indicate the extent to which the slope coefficients of the less productive firms (GAP = 1) differ from the
slope coefficients of the more productive firms (GAP = 0). Since the differential slope coefficients are negative and larger than the coefficients of spillover variables for the more productive firms, we can conclude
that, on average, less productive firms do not reap any externalities from MNEs. An exception is represented
by less productive Polish firms selling their products to multinational firms.
2010 The Authors
499
Table 3. The baseline model
Supplier sectors
Intra-sectoral spillover
Inter-sectoral spillovers
Gap * intra-sectoral spillovers
Gap * inter-sectoral spillover
Markup
Size of the firm
Region * year dummies
Sector * year dummies
Firm dummies
Number of observations
R2
Client sectors
Gap * intra-sectoral spillovers
Gap * inter-sectoral spillover
Markup
Size of the firm
Region year dummies
Sector year dummies
Firm dummies
R2
Bulgaria
Poland
Romania
0.039 (0.0502)
0.080 (0.0436)c
)0.046 (0.0115)a
)0.097 (0.0009)a
)0.200 (0.1031)b
)0.004 (0.0141)
F[25,2924] = 1.05
F[79,2924] = 1.66a
F[1816,2924] = 8.41a
4,851
0.15
)0.047 (0.0135)a
)0.013 (0.0209)
)0.100 (0.0092)a
)0.065 (0.0071)a
) 0.000 (0.0003)
0.017 (0.0079)b
F[112,4114] = 1.52a
F[111,4114] = 5.01a
F[1994,4114] = 8.43a
6,338
0.38
0.016 (0.0029)a
0.029 (0.0038)a
)0.016 (0.0007)a
)0.050 (0.0007)a
0.089 (0.0364)b
)0.013 (0.0015)a
F[49,67136] = 4.64a
F[140,67136] = 9.27a
F[20132,67136] = 6.91a
87,464
0.15
0.039 (0.0485)
0.071 (0.0800)
)0.059 (0.0070)a
)0.086 (0.0093)a
)0.208 (0.1039)b
)0.003 (0.0141)
F[25,2924] = 1.09
F[79,2924] = 1.70a
F[1809,2994] = 8.41a
4,851
0.15
)0.049 (0.0119)a
)0.097 (0.0034)a
)0.081 (0.0070)a
)0.070 (0.0074)a
0.000 (0.0003)
0.016 (0.0079)b
F[112,4114] = 1.56a
F[111,4114] = 4.92a
F[1994,4114] = 8.50a
6,338
0.39
0.015 (0.0027)a
0.024 (0.0060)a
)0.017 (0.0007)a
)0.054 (0.0009)a
0.090 (0.0374)b
)0.013 (0.0015)a
F[49,67136] = 4.68a
F[140,67136] = 9.08a
F[20132,67136] = 6.88a
87,464
0.15
Notes: Robust standard error in parentheses; a, b, c denote significance at 1%, 5% and 10% level, respectively.
prevents them from reaping any kind of knowledge brought into their respective
countries and regions by MNEs.
The results for highly productive indigenous firms seem to be strongly affected
by country-specific characteristics. In particular, we found that FDI-induced spillovers are positive and significant in Romania, positive but not significant in
Bulgaria, and negative and significant in Poland. These results hold for intra- and
inter-sectoral spillovers regardless of the position of foreign firms in the production
chain. However, the magnitude of the coefficients of the spillover variables suggests, on the one hand, that backward linkages are less important than forward
linkages, and, on the other, that competition effects are more intense in downstream
than in upstream sectors of the production chain.
2010 The Authors
500
We can thus draw the preliminary conclusion that competition effects dominate
over technological spillovers in more advanced countries, as the Polish experience
indicates, and that a substantial initial backwardness helps neutralize this negative
effect, as suggested by the technology gap hypothesis (Findlay, 1978).22
As far as the other explanatory variables are concerned, it can be seen that, ceteris
paribus, larger firms have a higher TFP level in Poland and a lower one in Romania,
while the TFP level of indigenous firms does not depend on their size in Bulgaria.
Finally, market competition decreases plant-level productivity in Romania and
increases it in Bulgaria, while it is not statistically significant in Poland. As expected,
both region-time and sector-time dummies turn out to be significant, with the
exception of region-time dummies in Bulgaria. Firm-level fixed effects are always
significant at the 1 per cent level, indicating that firm heterogeneity does exist.
4.2 Are all foreign firms able to generate spillovers?

In this subsection, we investigate whether foreign firm characteristics affect the
transmission of spillovers to indigenous firms. In particular, we seek to determine
whether foreign affiliates operating in low-tech manufacturing sectors are able to
exert the same impact on domestic firms productivity as foreign firms operating in
high-tech manufacturing sectors. For this purpose, we created separate variables
for spillovers from these two groups of foreign firms. Given that the scope for
technological transfer from the parent house to foreign subsidiaries is higher in
high-tech than in low-tech manufacturing sectors, we expected FDI spillovers in
the former to be more intense than in the latter. This hypothesis is on average confirmed by the results shown in Table 4, although country- and sector-specific
effects should be taken into account.
Foreign direct investments-induced spillovers generated by multinationals
operating in low-tech manufacturing sectors follow the general trends shown above
in Poland, Romania and Bulgaria, where they prove to be always positive, and significant even for less productive indigenous firms. Instead, foreign firms operating
in high-tech manufacturing sectors seem able to benefit indigenous firms only
through inter-sectoral spillovers, which are always positive, or at least not significant, with the sole exception of Bulgarian less productive firms, which suffer from
the presence of foreign firms operating in upstream sectors. Intra-sectoral spillovers, instead, are negative in Poland for all firms, and in Bulgaria and Romania for
less productive firms.23
22
These results are in line with those of some previous studies. Positive intra-sectoral technological spillovers in Romania have also been found by Merlevede and Schoors (2007), Smarzynska-Javorcik and
Spatareanu (2005) and Damijan et al. (2003a,b), who also found no evidence for FDI-induced spillovers in
Bulgaria. Negative FDI-induced spillovers have been detected in Poland by Zukowska-Gagelmann (2000),
Altomonte and Resmini (2002) and Pawlik (2005).
23
In Romania this negative effect disappears in the case of forward linkages.
2010 The Authors
501
Table 4. High-tech vs. low-tech foreign firms
Supplier sectors
Low-tech manufacturing sectors:
Gap intra-sectoral spillovers
Gap inter-sectoral spillover
High-tech manufacturing sectors:
Markup
Size of the firm
Region year dummies
Sector year dummies
Firm dummies
R2
Client sectors
Markup
Size of the firm
Region year dummies
Sector year dummies
Firm dummies
R2
Bulgaria
Poland
Romania
0.041 (0.0515)
0.085 (0.0483)c
)0.039 (0.0122)a
)0.073 (0.0138)a
)0.039 (0.0146)a
)0.003 (0.0222)
)0.102 (0.0096)a
)0.077 (0.0132)a
0.013 (0.0034)a
0.026 (0.0039)a
)0.017 (0.0008)a
)0.050 (0.0010)a
)0.022 (0.2343)
0.122 (0.0896)
)0.155 (0.1198)
)0.183 (0.0423)a
)0.197 (0.1045)b
)0.003 (0.0141)
F[25,2920] = 1.01
F[79,2920] = 1.65a
F[1816,2920] = 8.32a
4,851
0.16
)0.091 (0.0359)b
)0.070 (0.0695)
)0.109 (0.0311)a
)0.013 (0.0504)
)0.000 (0.0003)
0.017 (0.0079)b
F[113,4110] = 1.52a
F[110,4110] = 4.86a
F[1994,4110] = 8.39a
6,338
0.38
)0.014 (0.0133)
0.078 (0.0166)a
)0.014 (0.0049)a
)0.041 (0.0031)a
0.085 (0.0365)b
)0.014 (0.0015)a
F[49,67132] = 4.67a
F[140,67132] = 8.98a
F[201321,67132] = 6.91a
87,464
0.15
0.061 (0.0503)
0.118 (0.0954)
)0.061 (0.0070)a
)0.086 (0.0142)a
)0.059 (0.0157)a
)0.095 (0.0438)b
)0.093 (0.0079)a
)0.144 (0.0179)a
0.015 (0.0030)a
0.018 (0.0067)a
)0.017 (0.0007)a
)0.059 (0.0012)a
0.115 (0.2185)
)0.071 (0.1254)
)0.560 (0.1243)a
)0.010 (0.0283)
)0.190 (0.1043)b
)0.000 (0.0141)
F[25,2920] = 1.05
F[79,2920] = 1.69a
F[1816,2920] = 8.37a
4,851
0.16
)0.042 (0.0180)b
)0.098 (0.0636)
)0.070 (0.0146)a
0.115 (0.0416)a
)0.000 (0.0003)
0.015 (0.0079)b
F[112,4110] = 1.53a
F[111,4110] = 4.82a
F[1994,4110] = 8.43a
6,338
0.39
)0.012 (0.0106)
0.041 (0.0123)a
)0.035 (0.0026)a
)0.040 (0.0022)a
0.085 (0.0375)b
)0.013 (0.0015)a
F[49,67132] = 4.64a
F[140,67132] = 8.55a
F[20132,67132] = 6.87a
87,464
0.15
Notes: Robust standard error in parentheses; a, b, c denote significance at 1%, 5% and 10% level,
respectively.
2010 The Authors
502
Overall, these results confirm the theory that multinational enterprises do not
want to dissipate specific advantages, while they are more willing to transmit
generic knowledge to their local clients and or suppliers.
4.3 The size of the indigenous firms

As a final step, we investigated whether spillovers may depend on the scale of the
indigenous firms. As suggested by the microeconomic theory, large firms have
more resources to exploit innovative opportunities than do small and mediumsized firms. However, the latter are less bureaucratic and are therefore able to
adjust their structures more quickly than large firms, which in the less advanced
transition countries like Bulgaria and Romania may also be former state-owned
enterprises, with a burdensome inheritance of inefficiencies and old technologies
not adapted to compete with foreign firms operating domestically and abroad.
To test whether small and medium-sized firms are better than large firms in
exploiting FDI-induced technology spillovers, we split indigenous firms in each
country into three groups: small firms (fewer than 50 employees), medium-sized
firms (between 50 and 250 employees) and large firms (more than 250 employees).24
The results are set out in Table 5, which highlights some interesting facts, in that
several differences emerge both across sectors and countries.25
In Bulgaria, foreign firms can benefit medium-sized firms operating in complementary low-tech manufacturing sectors regardless of their level of absorptive
capacity. FDI presence in both low- and high-tech sectors is on average detrimental
to less productive small-sized firms, while it does not affect large firms.
We found no evidence of technology spillovers in Poland, where low-tech
foreign firms seem to be detrimental to less productive indigenous firms regardless
of their size, and neutral for more productive ones. High-tech foreign firms seem
unable to exert any effects on indigenous firms. Finally, both intra- and intersectoral spillovers are present in Romania, although the latter appear only when
foreign firms operate in high-tech manufacturing sectors. Only small firms benefit
from both kinds of spillovers, while large firms are able to reap spillovers only from
low-tech multinational enterprises.
4.4 Discussion of main results

The various sets of estimations from more general to more detailed presented in
the previous subsections are rather consistent within countries and shed new light
on the FDI-induced spillovers issue.
24
These intervals are those established by the European Commission in defining small and medium-sized
enterprises (see Commission Recommendation 96/280/EC).
25
We performed a traditional Chow test to reject the hypothesis that no differences exist across firms of
different size. See Table A4 in the appendix.
2010 The Authors

Supplier sectors
Intra-sectoral
0.173
spillover
(0.2082)
Inter-sectoral
0.017
spillovers
(0.1191)
Gap intra)0.098
sectoral spillovers
(0.0219)a
)0.087
Gap
(0.0216)a
inter-sectoral
spillover
Intra-sectoral
)0.204
spillover
(0.6812)
Inter-sectoral
)0.149
spillovers
(0.1803)
)0.500
Gap intra(0.1951)b
sectoral
spillovers
Gap inter0.036
sectoral spillover
(0.0717)
Number of
2159
observations
R2
0.27
<50
2010 The Authors

0.35
0.67
0.009
(0.1368)
1613
)0.240
(0.1736)
706
)0.189
(0.0596)a
1986
0.20
)0.326
(0.6965)
)0.148
(0.3568)
)0.032
(0.1104)
)0.013
(0.3921)
0.161
(0.2326)
)0.022
(0.2537)
)0.417
(0.3452)
0.158
(0.1041)
0.099
(0.1834)
0.025
(0.0401)
)0.117
(0.0796)
)0.079
(0.0196)a
)0.100
(0.0424)b
<50
)0.036
(0.0684)
0.059
(0.0685)
)0.022
(0.0332)
)0.019
(0.0499)
>250
0.010
(0.0627)
0.115
(0.0561)b
)0.018
(0.0158)
)0.040
(0.0185)b
50250
Bulgaria
0.31
0.045
(0.0829)
3069
)0.011
(0.0978)
)0.149
(0.1183)
)0.198
(0.0522)a
)0.015
(0.0243)
)0.027
(0.0349)
)0.110
(0.0136)a
)0.085
(0.0187)a
50250
Poland
0.31
)0.025
(0.0779)
1656
)042
(0.0461)
)0.021
(0.1274)
)0.094
(0.0384)b
)0.012
(0.0258)
0.038
(0.0349)
)0.098
(0.0228)a
)0.053
(0.0250)b
>250
0.15
)0.038
(0.0032)a
81901
)0.025
(0.0145)c
0.080
(0.0180)a
)0.015
(0.0053)a
0.010
(0.0037)a
0.017
(0.0043)a
)0.016
(0.0008)a
)0.052
(0.0010)a
<50
Table 5. FDI spillovers and the size of the indigenous firms
0.15
)0.018
(0.0146)
3779
0.023
(0.0755)
0.051
(0.1030)
)0.011
(0.0212)
0.003
(0.0244)
)0.027
(0.0244)
)0.011
(0.0045)b
)0.025
(0.0043)a
50250
Romania
0.26
0.019
(0.0272)
1784
)0.056
(0.0598)
0.027
(0.0858)
)0.046
(0.0298)
0.052
(0.0184)a
0.020
(0.0184)
)0.014
(0.0062)b
)0.016
(0.0053)a
>250
503
0.36
)0.048
(0.4534)
0.090
(0.2434)
)0.220
(0.4225)
)0.005
(0.1110)
706
)0.500
(0.3994)
)0.034
(0.1748)
0.407
(0.3539)
)0.040
(0.0629)
1969
0.62
)0.070
(0.0690)
)0.170
(0.1741)
)0.027
(0.0231)
)075
(0.0301)b
>250
0.018
(0.0622)
0.200
(0.1191)c
)0.035
(0.0089)a
)0.084
(0.0204)a
50250
Bulgaria
0.67
0.101
(0.5378)
0.283
(0.2863)
)0.042
(0.0546)
)0.067
(0.1275)
1613
)0.010
(0.0500)
)0.392
(0.1759)b
)0.073
(0.0159)a
)0.079
(0.0526)
<50
0.32
)0.007
(0.0499)
)0.078
(1099)
)0.106
(0.0247)a
0.101
(0.0711)
3069
)0.035
(0.0270)
)0.089
(0.0666)
)0.096
(0.0108)a
)0.140
(0.0295)a
50250
Poland
0.31
)0.010
(0.0232)
0.055
(0.1368)
)0.063
(0.0174)a
0.120
(0.0667)c
1656
)0.021
(0.0307)
0.035
(0.0926)
)0.096
(0.0187)a
)0.116
(0.0373)a
>250
0.15
)0.023
(0.0123)c
0.031
(0.0133)b
)0.035
(0.0029)a
)0.040
(0.0023)a
81901
0.014
(0.0032)a
0.016
(0.0072)b
)0.017
(0.0007)a
)0.059
(0.0012)a
<50
0.15
)0.026
(0.0499)
)0.027
(0.0660)
)0.038
(0.0080)a
)0.012
(0.0115)
3779
0.024
(0.0265)
)0.021
(0.0266)
)0.012
(0.0042)a
)0.026
(0.0057)a
50250
Romania
0.28
)0.0008
(0.0254)
0.031
(0.0543)
)0.041
(0.0091)a
0.009
(0.0175)
1784
0.085
(0.0236)a
)0.057
(0.0278)b
)0.034
(0.0065)a
0.010
(0.0060)c
>250
Notes: Regressions also include markup and firms size variables as well as the whole set of firm, region and sector specific fixed effects used in
the previous specifications. Robust standard error in parenthesis; a, b, c denote significance at 1%, 5% and 10% level, respectively. FDI, foreign
direct investments.
Client sectors
Intra-sectoral
0.117
spillover
(0.1380)
Inter-sectoral
)0.055
spillovers
(0.2512)
Gap intra)0.076
sectoral spillovers
(0.0122)a
Gap inter)0.038
sectoral spillover
(0.0249)
Intra-sectoral
)0.190
spillover
(0.4771)
Inter-sectoral
)0.371
spillovers
(0.2657)
Gap intra)0.862
sectoral spillovers
(0.1892)a
Gap inter)0.045
sectoral spillover
(0.0387)
Number of
2159
observations
R2
0.28
<50
Table 5. (cont) FDI spillovers and the size of the indigenous firms
504
2010 The Authors

505
In particular, our results confirm that inter-sectoral spillovers are more likely to
occur than intra-sectoral spillovers. This result is consistent not only with the theory, which suggests that multinational enterprises are more likely to encourage the
transmission of technology spillovers to local clients and suppliers than to local
competitors, but also with previous studies on transition countries (Merlevede and
Schoors, 2007; Smarzynska-Javorcik, 2004; Schoors and van der Tol, 2002; Altomonte and Resmini, 2002).
Secondly, the findings indicate that FDI-induced spillovers are not automatic
for indigenous firms. Rather, they suggest that positive FDI-induced spillovers on
locally-owned firms have been conditioned by specific factors, namely the technology intensity of foreign firms products and the size of the indigenous firms. This
result holds across all the countries considered.
Thirdly, we find evidence of positive spillovers in Romania and, albeit to a lesser extent, in Bulgaria, but not in Poland, which was the most advanced country in
our sample. This result supports the technology gap hypothesis (Veblen, 1915;
Gerschenkron, 1962; Findlay, 1978) to the effect that the wider the technology gap,
the easier it is to pick up appropriable technologies and thus obtain productivity
gains. As indicated by the figures in Table 2, in 1998 the productivity gap between
Polish and foreign firms was either very narrow or in favour of indigenous firms,
as in the case of low-tech manufacturing sectors. Although the Polish technology
gap had increased over time, in 2003 it was still the smallest in the three countries
considered. Therefore, there was no or less scope for technology spillovers in
Poland as opposed to Romania and Bulgaria, creating room for competition effects,
which are not surprisingly more intense when domestic and foreign firms operate
in the same sectors rather than in complementary manufacturing sectors.
If we consider what happened within each country, different stories can be told
about who generates technology spillovers and who benefits from them. In Bulgaria,
we found evidence of only inter-sectoral spillovers generated by low-tech foreign firms
and benefiting only medium-sized indigenous firms. Instead, the pattern in Romania
comprises both intra- and inter-sectoral spillovers from foreign firms operating in lowtech manufacturing sectors, and inter-sectoral spillovers from foreign firms in high-tech
manufacturing sectors. Unlike in Bulgaria, intra-sectoral spillovers accrue to small
more productive firms and large firms, regardless of their absorptive capacity, while
inter-sectoral spillovers accrue to small more productive firms. In Poland there is no
room for spillover effects, given the small gap in productivity between indigenous and
foreign firms. Hence, competitive effects dominate, indicating that foreign firms
reduced indigenous firms market shares, forcing them up their average cost curve.
5. Summary and Conclusions

The main objective of this paper has been to analyse the importance of FDI-induced
spillovers on a set of comparable countries by using the same methodology. For this
2010 The Authors
506
purpose, we have differentiated not only between intra- and inter-sectoral spillovers, and backward and forward linkages, but also explored the role that some
firms characteristics can play in the transmission process. We have argued that
determining which type of foreign firm is better able to create spillovers and which
type of indigenous firm benefits from FDI-induced spillovers is more informative
than the mean benefit across a pool of heterogeneous source and host country
firms.
The analysis, performed on a firm-level database including more than 40,000
indigenous firms operating in 18 manufacturing sectors in Bulgaria, Poland and
Romania during the period 19982003, contributes to the literature in several ways.
Overall, substantial heterogeneity in how FDI-induced spillovers are generated
and distributed across indigenous firms has been found, the main results being: (1)
foreign firms operating in low-tech manufacturing sectors generate intra-sectoral
spillovers, while foreign firms operating in high-tech foreign firms generate intersectoral spillovers; (2) FDI effects operate through both supplier and client relationships; (3) FDI-induced spillovers are significant in Romania and to a lesser extent in
Bulgaria; but they are not significant in Poland, where the technological gap
between foreign and domestic firms is so narrow that it produces competition
effects rather than technology spillovers; (4) firms size matters in the transmission
of FDI-induced spillovers but not in the case of competition effects. Moreover, its
effects vary not only across manufacturing sectors but also across countries.
Our findings suggest that more research is needed to enhance our understanding of sector- and firm-specific factors able to affect the nature and the magnitude
of FDI-induced spillovers.
References
Alfaro, L. and Rodriguez-Clare, A. (2004). Multinationals and linkages: An empirical
investigation, Economia, 4, pp. 11369.
Altomonte, C. and Resmini, L. (2002). Multinational enterprises as a catalyst for local industrial development. The case of Poland, Scienze Regionali. The Italian Journal of Regional Science, 1, pp. 2958.
Blomstrom, M. and Kokko, A. (1997). How foreign investment affects host countries, Policy
Research Working Paper Series n. 1745, Washington, DC: The World Bank.
Blomstrom, M., Globerman, S. and Kokko, A. (2001). The determinants of host country
spillovers from foreign direct investment: A review and synthesis of the literature, in
Pain N. (ed.), Inward Investment, Technological Change and Growth: The Impact of Multinational Corporations on the UK Economy, New York: Houndmills, pp. 3465.
Cantwell, J. (1993). Technological competence and evolving patterns of international
production, in Cox H., Clegg J., Ietto-Gilles G. (eds), The Growth of Global Business,
London: Routledge, pp. 1937.
Damijan, J. P., Knell, M., Majcen, B. and Rojec, M. (2003a). Technology transfer through FDI
in top-10 transition countries: How important are direct effects, horizontal and vertical
2010 The Authors
507
spillovers? William Davidson Working Paper No. 549, Ann Arbor, MI: William Davidson
Institute, http://www.wdi.bus.umich.edu/research/working_papers.htm.
Damijan, J., Knell, J., Maicen, B. and Rojec, M. (2003b). The role of FDI, R&D accumulation
and trade in transferring technology to transition countries: Evidence from firm panel
data for eight transition countries, Economic Systems, 27, pp. 189204.
De Loecker, J. (2007). Product differentiation, multi-product firms and estimating the impact
of trade liberalization on productivity, NBER Working Paper No. W13155, Cambridge,
MA: National Bureau of Economic Research.
Djankov, S. and Hoekman, B. (2000). Foreign investment and productivity growth in Czech
enterprise, World Bank Economic Review, 14, pp. 4964.
Dunning, J. (1993). Multinational Enterprises and the Global Economy, Wokingham: Addison
Wesley.
Findlay, R. (1978). Relative backwardness, direct foreign investment, and the transfer of
technology: A simple dynamic model, The Quarterly Journal of Economics, 92, pp. 116.
Fosfuri, A., Motta, M. and Ronde, T. (2001). Foreign direct investment and spillovers
through worker mobility, Journal of International Economics, 53, pp. 20522.
Gerschenkron, A. (1962). Relative Backwardness in Historical Perspective, Cambridge, MA:
Harvard University Press.
Glass, A., Kosteas, V. and Saggi, K. (2001). Linkages, multinationals and industrial development, in Lipsey R., Mucchielli J. L. (eds), Multinational Firms and Impacts on Employment,
Trade and Technology, London: Routledge, pp. 137153.
Gorg, H. and Greenaway, D. (2004). Much ado about nothing? Do domestic firms really
benefit from foreign investment? World Bank Research Observer, 19, pp. 17197.
Gorg, H. and Strobl, E. (2001). Multinational companies and productivity spillovers: A
meta-analysis, The Economic Journal, 111, pp. 72339.
Gorg, H., Hijzen, A. and Murakozy, B. (2006). The productivity spillover potential of
foreign-owned firms: Firm-level evidence for Hungary, Research Paper No. 8, The
University of Nottingham.
Haskel, J., Pereira, S. and Slaughter, M. (2007). Does inward foreign direct investment boost
the productivity of domestic firms? The Review of Economics and Statistics, 89, pp. 48296.
Hirschman, A. (1958). The Strategy of Economic Development, New Haven, CT: Yale University
Press.
Jabbour, L. and Mucchielli, J. L. (2005). Foreign affiliates in the French manufacturing
industry: Source or recipient of technology spillovers? Mimeo.
Keller, W. (2002). Geographic localization of international technology diffusion, American
Economic Review, 92, pp. 12042.
Keller, W. and Yeaple, S. (2003). Multinational enterprises, international trade, and productivity growth: Firm level evidence from the United States, NBER Working Paper No. 9504,
Cambridge MA: National Bureau of Economic Research.
Kinoshita, Y. (2001). R&D and technology spillovers through FDI: Innovation and absorptive
capacity, CEPR Discussion Paper No. 2775, London: Centre for Economic and Policy
Research.
Konings, J. (2001). The effect of direct foreign investment on domestic firms: Evidence from
firm level panel data in emerging economies, Economics of Transition, 9, pp. 61933.
Kugler, M. (2006). Spillovers from foreign direct investment: Within or between industries?
Journal of Development Economics, 80, pp. 44477.
2010 The Authors

508
Levinsohn, J. and Petrin, A. (2003). Estimating production functions using inputs to control
for unobservables, Review of Economic Studies, 70, pp. 31741.
Lipsey, R. and Sjoholm, F. (2005). The impact of inward FDI on host countries: Why such different answers? in Moran, T. H., Graham, E. M. and Blomstrom, M. (eds), Does Foreign
Direct Investment Promote Development? Washington, DC: Institute for International
Economics, pp. 2343.
Liu, X., Siler, P., Wang, C. and Wei, Y. (2000). Productivity spillovers from foreign direct
investment: Evidence from UK industry level panel data, Journal of International Business
Studies, 31, pp. 40725.
Mairesse, J. and Jaumandreu, J. (2005). Panel-data estimates of the production function and
the revenue function: What difference does it make? Scandinavian Journal of Economics,
107, pp. 65172.
Mansfield, E. and Romeo, A. (1980). Technology transfer to overseas subsidiaries by US
based firms, Quarterly Journal of Economics, 95, pp. 73750.
Markusen, J. and Venables, A. (1999). Foreign direct investment as a catalyst for industrial
development, European Economic Review, 43, pp. 33556.
Merlevede, B. and Schoors, K. (2007). FDI and the consequences towards more complete
capture of spillover effects, William Davidson Working Papers Series No. 886, Ann Arbor:
William Davidson Institute at the University of Michigan Stephen M. Ross Business
School.
Olley, S. and Pakes, A. (1996). The dynamics of productivity in the telecommunication
equipment industry, Econometrica, 64, pp. 126397.
Pawlik, K. (2005). Effects of foreign presence and affiliate control on the productivity of
domestic companies in a transition economy: The case of the Polish manufacturing 1993
2002, Working Paper No. 11, Aarhus: Aarhus School of Business, Department of Management.
Peri, G. and Urban, D. (2006). Catching-up to foreign technology? Evidence on the VeblenGerschenkron effect of foreign investment, Regional Science and Urban Economics, 36,
pp. 7298.
Resmini, L. (2000). The determinants of foreign direct investment into the CEECs: New
evidence from sectoral patterns, Economics of Transition, 8, pp. 66589.
Rodriguez-Clare, R. (1996). Multinationals, linkages, and economic development, American
Schoors, K. and van der Tol, B. (2002). The productivity effect of foreign ownership on
domestic firms in Hungary, Working Paper No. 157, Gent: University of Gent.
Sinani, E. and Meyer, K. (2004). Spillovers of technology transfer from FDI: The case of Estonia, Journal of Comparative Economics, 32, pp. 44566.
Smarzynska-Javorcik, B. (2004). Does foreign direct investment increase the productivity of
domestic firms? In search of spillovers through backward linkages, American Economic
Review, 94, pp. 60527.
Smarzynska-Javorcik, B. and Spatareanu, M. (2005). Disentangling FDI spillover effects:
What do firm perceptions tell us? in Moran, T. H., Graham, E. M., Blomstrom, M. (eds),
Does Foreign Direct Investment Promote Development? Washington, DC: Institute for International Economics, pp. 4571.
Torlak, E. (2004). Foreign direct investment, technology transfer, and productivity growth
in transition countries: Empirical evidence from panel data, CEGE-Discussion Paper
2010 The Authors

509
No. 26, Center for European, Governance and Economic Development Research, University of Goettingen.
Tytell, I. and Yudaeva, K. (2007). The role of FDI in Eastern Europe and new independent
states: New channels for the spillover effect, in Liescher, K., Christl, J., Mooslechner, P.,
and Ritzberger-Grunwald, D. (eds), Foreign Direct Investment in Europe. A Changing
Landscape, Cheltenham: Edward Elgar, pp. 7686.
UN/ECE (2001). Economic growth and foreign direct investment in the transition economies, Economic Survey of Europe, 1, Geneva: United Nations Press, pp. 185225.
UNCTAD (2001). World Investment Report. Promoting Linkages, chapter IV, pp. 129215,
Geneva: United Nations Press.
Veblen, T. (1915). Imperial Germany and the Industrial Revolution, London: MacMillan.
Wang, J. and Blomstrom, M. (1992). Foreign investment and technology transfer, European
Yudaeva, K., Kozlov, K., Melentieva, N. and Ponomareva, N. (2003). Does foreign ownership matter? The Russian experience, Economics of Transition, 11, pp. 383409.
Zukowska-Gagelmann, K. (2000). Productivity spillovers from foreign direct investment in
Poland, Economic System, 24, pp. 22356.
Appendix
Table A1. Representativeness of the sample
Country
1998
2003
Bulgaria
Poland
Romania
0.94a
0.88a
0.99a
0.89
0.86a
0.94a
Notes: Correlation between manufacturing employments recorded in the database and official data from
Eurostat; aindicates significance at 1% level.
2010 The Authors

510
Table A2. Classification of manufacturing industries (NACE Rev. 1 codes

in parentheses)
High-technology industries
Low-technology industry
Aircrafts and spacecrafts (353)

Office, accounting and
computing machinery (30)
Radio, TV and communications
equipment (32)
Medical, precision and
optical instruments (33)
Electrical machinery and apparatus
n.e.c. (31)
Motor vehicles, trailers and semi-trailers (34)
Chemicals (excluding pharmaceuticals) (24)
Railroad and transport
equipment (352, 353, 354)
Machinery and equipment n.e.c. (29)
Building and repair of ships and boats (351)

Rubber and plastic products (25)
Coke, refined petroleum products and
nuclear fuel(23)
Other non-metallic mineral products (26)
Basic metals and fabricated metal
products (2728)
Manufacturing n.e.c., recycling (3637)
Wood, pulp, paper prod., printing
and publishing (2022)
Food products, beverages and tobacco (1516)
Textiles, textile products,
leather and footwear (1719)
Table A3. Spillover variables: correlation matrix
Intra_SpillS
Inter_SpillS
Intra_SpillC
Inter_SpillC
Intra_SpillS
Inter_SpillS
BG: 1.00
PL: 1.00
RO: 1.00
BG: 0.009
PL: 0.015a
RO: )0.21a
BG: 0.97a
PL: 0.99a
RO: 0.97a
BG: )0.19a
PL: )0.054a
RO: )0.13a
BG: 1.00
PL: 1.00
RO: 1.00
BG: 0.054a
PL: 0.012b
RO: )0.07a
BG: 0.57a
PL: 0.80a
RO: 0.57a
Intra_SpillC
BG: 1.00
PL: 1.00
RO: 1.00
BG: )0.25a
PL: )0.10a
RO: )0.17a
Inter_SpillC
BG: 1.00
PL: 1.00
RO: 1.00
Note: a,bdenote significance at 1% and 5% levels respectively. S, supplier sectors; C, client sectors.
2010 The Authors

511
Table A4. Chow tests for structural breaks in splitting the sample by
indigenous firm size
MNEs in supplier sectors

MNEs in client sectors
Bulgaria
Poland
Romania
F[114,4509] = 18.82a
F[114,4509] = 19.16a
F[233,6338] = 22.88a
F[233,6338] = 22.74a
F[199,86867] = 28.49a
F[199,86867] = 28.23a
Note: adenotes significance at 1% level.
2010 The Authors


Economics of Transition, 2010, FDI EU

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Economics of Transition, 2010, FDI EU

Загружено:

Авторское право:

Доступные форматы

Economics of Transition

Volume 18(3) 2010, 487511

FDI spillovers in new EU

Received: February 5, 2007; Acceptance: July 13, 2009

2010 The Authors

Nicolini and Resmini

FDI Spillovers in New EU Member States

2. FDI productivity spillovers in the theoretical and empirical

Nicolini and Resmini

3. Data and methodology

2010 The Authors

2010 The Authors

Sinani and Meyer (2004)

Djankov and Hoekman (2000)

Table 1. Summary of representative studies on FDI spillovers in CEECs

FDI Spillovers in New EU Member States

Nicolini and Resmini

2010 The Authors

FDI Spillovers in New EU Member States

Table 2. Domestic and foreign firms in the transition countries

firms in traditional labour-intensive sectors such as textiles, clothing, footwear

Nicolini and Resmini

3.1 The empirical strategy

2010 The Authors

FDI Spillovers in New EU Member States

INTRA SPILLSsrt ass fdisrt1 ;

2010 The Authors

Nicolini and Resmini

INTRA SPILLCsrt xss fdiisrt1 :

Equations (2 and 4) measure foreign firm penetration in industries from which

FDI Spillovers in New EU Member States

2010 The Authors

Nicolini and Resmini

4.1 The baseline model

FDI Spillovers in New EU Member States

Table 3. The baseline model

Nicolini and Resmini

4.2 Are all foreign firms able to generate spillovers?

FDI Spillovers in New EU Member States

Table 4. High-tech vs. low-tech foreign firms

Nicolini and Resmini

4.3 The size of the indigenous firms

4.4 Discussion of main results

2010 The Authors

2010 The Authors

Table 5. FDI spillovers and the size of the indigenous firms

FDI Spillovers in New EU Member States

2010 The Authors

FDI Spillovers in New EU Member States

5. Summary and Conclusions

Nicolini and Resmini

FDI Spillovers in New EU Member States

2010 The Authors

Nicolini and Resmini

2010 The Authors

FDI Spillovers in New EU Member States

2010 The Authors

Nicolini and Resmini

Table A2. Classification of manufacturing industries (NACE Rev. 1 codes

Aircrafts and spacecrafts (353)

Building and repair of ships and boats (351)

Table A3. Spillover variables: correlation matrix

2010 The Authors