Vertical linkages between foreign MNEs in service sectors and local manufacturing firms

This paper deals with backward and forward linkages stemming from foreign multinational enterprises (MNEs) in service sectors, and their impact on the productivity of local manufacturing firms. Using a database on foreign MNEs in service sectors in Italy, over the period 1999–2005, we find that: (i) backward linkages impact local supplier firms’ productivity because of the increased demand; (ii) forward linkages positively influence local customer firms thanks to the increased competition in the local relevant service sector. However, we also find that the absorptive capacity as well as the foreign involvement of local manufacturing firms acts as a moderating factor for the transmission of spillovers.