Journal Article

Estimating Direct and Indirect Effects of Foreign Direct Investment on Firm Productivity in the Presence of Interactions between Firms

Authors

  • Sourafel Girma
  • Yundan Gong
  • Holger Görg
  • Sandra Lancheros
Publication Date

We implement a method to estimate the direct effects of foreign-ownership on foreign firms' productivity and the indirect effects (or spillovers) from the presence of foreign-owned firms on other foreign and domestic firms' productivity in a unifying framework, taking interactions between firms into account. To do so, we relax a fundamental assumption made in empirical studies examining a direct causal effect of foreign ownership on firm productivity, namely that of no interactions between firms. Based on our approach, we are able to combine direct and indirect effects of foreign ownership and calculate the total effect of foreign firms on local productivity. Our results show that all these effects vary with the level of foreign presence within a cluster, an important finding for the academic literature and policy debate on the benefits of attracting foreign owned firms.

Kiel Institute Expert

Info

JEL Classification
C19, F23
DOI
10.1016/j.jinteco.2014.11.007

Key Words

  • ausländische Direktinvestitionen
  • foreign direct investment
  • propensity score matching
  • SUTVA
  • treatment effects