Which Foreigners are Worth Wooing?A Meta-Analysis of Vertical Spillovers from FDI

The principal argument for subsidizing foreign investment, especially in developing andtransition economies, is the assumed spillover of technology to local firms. Yet researchersreport mixed results on spillovers. To examine the phenomenon in a systematic way, wecollected 3,626 estimates from 57 empirical studies on between-sector spillovers and reviewedthe literature quantitatively. Our results indicate that model misspecifications reduce thereported estimates, but that journals select relatively large estimates for publication. Theunderlying spillover to suppliers is positive and economically significant, whereas the spilloverto buyers is insignificant. Greater spillovers are generated by investors that come fromdistant countries and that have only slight technological advantages over local firms. Inaddition, greater spillovers are received by countries that have underdeveloped financialsystems and that are open to international trade....