Understanding FDI Spillovers in the Presence of GVCs
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 sp...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/149331619640987210/Understanding-FDI-Spillovers-in-the-presence-of-GVCs http://hdl.handle.net/10986/35523 |
| Summary: | 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. |
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