FDI Spillovers and Time since Foreign Entry

This study investigates the effect of foreign direct investment (FDI) on the productivity of local firms. In contrast to existing literature our empirical approach does not require FDI to have immediate or permanent effects. We find that foreign entry initially negatively affects local competitors’ productivity, followed by a positive permanent effect from majority foreign owned firms present for longer time. The effect on the productivity of local suppliers, in contrast, is transient. Majority foreign owned firms boost local suppliers’ productivity a few years after entry, then the effect fades out. Minority foreign owned firms have similar but smaller effect.