nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2007‒11‒10
two papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Foreign Direct Investment and Country-Specific Human Capital By Jinyoung Kim; Jungsoo Park
  2. When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies By Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell

  1. By: Jinyoung Kim (Department of Economics, Korea University); Jungsoo Park (Department of Economics, Sogang University)
    Abstract: Workers who are educated abroad acquire human capital specific to the country of foreign study (for example, language capital and country-specific knowledge on firm organization and on social system) which makes them more productive than domestically educated workers when both types of workers are employed by subsidiaries of multinational firms headquartered in the country of foreign study. An increase in foreign-educated labor in an FDI-host country thus attracts more FDI from the country of foreign study. We find evidence from bilateral FDI and foreign-student data for 63 countries over the period of 1963-1998 that strongly supports this prediction. Our findings suggest that foreign-educated labor may account for a sizable portion of growth in FDI flows during the sample period.
    Keywords: foreign direct investment, multinational firm, human capital, foreign education, students abroad
    JEL: F21 F10
    Date: 2007
  2. By: Yuriy Gorodnichenko (University of California, Berkeley); Jan Svejnar (University of Michigan and IZA); Katherine Terrell (University of Michigan and IZA)
    Abstract: We use firm-level data and national input-output tables from 17 countries over the 2002-2005 period to test new and existing hypotheses about the impact of foreign direct investment (FDI) on the efficiency of domestic firms in the host country (i.e., spillovers). Providing evidence from a larger sample of countries and greater variety of firms than existing studies, with separate estimates by firm size, age, and sector, we show: a) backward spillovers (stemming from supplying a foreign firm in the host country or exporting to a foreign firm) are consistently positive; b) horizontal spillovers are mostly insignificant but positive for older firms and firms in the service sector; d) forward spillovers (from purchasing from foreign firms or importing) are also positive only for old and service sector firms. We find no support for the hypothesis that spillovers are greater for FDI with more advanced technology. While efficiency of domestic firms’ is affected by the business environment, the strength of FDI spillovers is not, either when measured by the degree of corruption, bureaucratic red tape or by differences across regions that vary in terms of development. Testing whether spillovers vary with the firm’s "absorptive capacity" we find: i) distance from the efficiency frontier tends to dampen horizontal spillovers in manufacturing and backward spillovers among old firms; ii) whereas firms with a larger share of university educated workforce are more productive, they do not enjoy greater FDI spillovers than firms with less educated workers. FDI spillovers hence vary by sectors and types of firms.
    Keywords: FDI, spillovers, transition economies, efficiency
    JEL: F23 O16 P23
    Date: 2007–09

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