While the results from the above generation of papers,
which for the most part regressed local firm productivity
on FDI activity within the same sector, were by and large
negative, it is possible that they were looking in the
wrong place. Rather than search for horizontal spillovers
at the intra-industry level, one might look for broader
spillover effects such as vertical linkages generated
between MNEs and their host country suppliers at the
inter-industry level. One explanation for the lack of evidence
of externalities is that, because multinationals
have an incentive to minimize technology leakage to
competitors but improve the productivity of suppliers,
FDI-generated spill overs are more likely to be vertical
than horizontal.
While the results from the above generation of papers,which for the most part regressed local firm productivityon FDI activity within the same sector, were by and largenegative, it is possible that they were looking in thewrong place. Rather than search for horizontal spilloversat the intra-industry level, one might look for broaderspillover effects such as vertical linkages generatedbetween MNEs and their host country suppliers at theinter-industry level. One explanation for the lack of evidenceof externalities is that, because multinationalshave an incentive to minimize technology leakage tocompetitors but improve the productivity of suppliers,FDI-generated spill overs are more likely to be verticalthan horizontal.
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