Foreign Direct Investment and Productivity Spillovers: Identifying Linkages through Product-based Measures

This article analyzes direct and indirect effects of foreign ownership on productivity in the Turkish manufacturing plants between 1990 and 1996. First, based on Olley-Pakes production function estimates, foreign affiliates are shown to be more productive than local plants. Using sectoral output shares of foreign affiliates and 1990 input-output matrix to identify linkages across plants, regression results show that productivity spillovers from foreign affiliates to local plants took place through horizontal and vertical linkages. However, these results mostly lose their economic and statistical significance once plant-level data on the value of output and inputs are used to obtain product-based measures of linkages across plants. The magnitude of spillover effects are much smaller than the ones obtained with industry-based measures. Statistically meaningful positive spillovers are found to be generated through backward linkages only.