As previous studies show, the presence of FDI in the industry may generate
negative spillovers on the productivity level of domestic firms in the short term (e.g. Haddad &
Harrison, 1993; Aitken & Harrison, 1999; and Liu, 2008). However, when considered in the long
term, FDI spillovers are more likely to have a positive effect on the rate of productivity growth
of domestic firms because FDI spillovers help enhance future productivity capacity (firmspecific
capital) of domestic firms, which determines the long-term growth rate of productivity.
The empirical results support the argument of Liu (2008). Without differentiating the level from
the rate effects of FDI spillovers, the estimated spillovers effect is often negative, especially
when dataset used covers a short time span. This dissertation aims to extend Liu’s work (Liu,
2008) further by estimating the FDI effects separately for high-tech and low-tech industries. Our
goal is to determine whether the positive rate effect of horizontal spillovers is driven by FDI
spillovers in the low-tech or high-tech industries.