Presentation on theme: "Beata Javorcik University of Oxford and CEPR"— Presentation transcript:
1Beata Javorcik University of Oxford and CEPR Can Eastern European experience teach us anything about development impacts of FDI in other parts of the world?Beata JavorcikUniversity of Oxford and CEPR
2Yes! Why?Why the composition of FDI inflows differs from region to region, major multinationals are present on all continentsDifferential impacts of FDI can be attributed to host country conditions rather than region-specific factors
3Why should we expect technology transfer through FDI? Theoretical literatureOLI paradigm (Dunning 1988)Models with heterogenous firms (Helpman, Melitz and Yeaple, AER 2004)MNCs are more likely to offer training to their employeesMNCs are responsible for most of the world’s R&D700 multinational corporations accounted for 46% of the world’s total R&D expenditure and 69% of the world’s business R&D in 2002 (UNCTAD, 2005)R&D budgets of large multinationals may exceed R&D spending of some countries
4R&D budgets of some MNCs exceed R&D spending of transition countries (2003) CIS figure includes: Russia, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Ukraine, Uzbekistan.New EU member states figure includes: Czech Rep, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Rep, Slovenia.
5Productivity spillovers from FDI Horizontal - from presence of multinationals (MNCs) in the same sectordemonstration effect, movement of laborMNCs have an incentive to prevent them
6Different channels are at work and relative magnitudes differ by country World Bank survey: Has the presence of foreign firms operating in your industryhad any impact on your firm?
7Productivity spillovers from FDI Horizontal - from presence of multinationals (MNCs) in the same sectordemonstration effect, movement of laborMNCs have an incentive to prevent themBackward linkages - contacts between localsuppliers and MNC customersdirect assistance to suppliers, higher requirementsMNCs have an incentive to promote them=> more likely to observe spillovers through backward linkages rather than the horizontal channel
8Broad patterns are similar across regions No evidence of horizontal spilloversEvidence consistent with spillovers through backward linkagesLithuania (Javorcik, AER 2004)Indonesia (Blalock and Gertler, JIE 2007)
9Beneficial effects of services FDI A one-standard-deviation increase in FDI in services => a 3.8% increase in the average productivity of Czech firms in manufacturingServices liberalization from the level of Romania to the level of the Czech Republic => a 4.8% increase in the average productivity of Czech firmsArnold et al (2007)A one-standard-deviation increase in services liberalization => a productivity increase of 6% for Indian firmsArnold et al (2008)
10Bottom lineDiverse experiences of countries are a reflection of their policies and characteristics, not region-specific factorsHence, Eastern European experience contain valuable lessons for Asian countries, and vice versa
12Total Factor Productivity Foreign ownership improves performance (Indonesia: Arnold and Javorcik 2008)Total Factor ProductivityPre-acquisitionYearAcquisitionyearOne year laterTwo years laterTreatment group0.8641.0791.1421.215Control group0.8670.9761.0221.083ATT0.106***0.122***0.135***(0.034)(0.045)(0.051)No. of matched pairs297
13Foreign ownership improves performance (Indonesia: Arnold and Javorcik 2008) Labor productivityPre-acquisitionYearAcquisitionyearOne year laterTwo years laterTreatment group4.284.504.604.62Control group4.204.144.064.05ATT0.280***0.459***0.489***(0.072)(0.074)(0.088)No. of matched pairs392
18How do we reconcile an increase in TFP with no change in capital- and skill-intensity? TFP increase achieved through organizational and managerial changesAttracting more experienced and motivated workersPay scales linked to performanceForeign affiliates in Indonesia pay higher wages to workers with a given educational level than domestic producers (Lipsey and Sjöholm 2004)Training of workersBetter inputs
20Mixed results from firm-level panel studies of FDI spillovers Aitken and Harrison (AER 1999) - Venezuelan plant-level dataIncrease in FDI presence negatively affects TFP of local plants in the same sectorHaskel, Pereira and Slaughter (REStat 2007) - UK plant-level dataIncrease in FDI presence positively affects TFP of local plants in the same sectorJavorcik (AER 2004) - Lithuanian firm-level dataPositive spillovers to supplying sectors, no evidence of intra-industry effects
22Country conditions may matter Aitken and Harrison (1999) – VenezuelaHeavy restrictions on foreign investors, mandatory JVs, import substitution => low incentives for technology transfer to foreign affiliates (Moran 2007)Increase in foreign equity => increase in TFP only in firms with under 50 employees => little potential for producing knowledge spilloversHaskel, Pereira and Slaughter (2007) - UKHighly developed country => limited potential for ‘market stealing’Highly developed country => limited room to learnLesser performers benefit more from spilloversJavorcik (2004) - LithuaniaTransition from central planning to free marketLimited competition and exposure to foreign goods => ‘market stealing’ effect likelyLimited exposure to foreign buyers in the past => potential for spillovers from foreign customers