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Discussion Paper Details

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Title: Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects

Author(s): Christian Fons-Rosen, Sebnem Kalemli-Ozcan, Bent E Sørensen, Carolina Villegas-Sanchez and Vadym Volosovych

Publication Date: August 2017

Keyword(s): Competition, FDI, multinationals, selection, technology and TFP

Programme Area(s): Industrial Organization, International Macroeconomics and Finance and Macroeconomics and Growth

Abstract: We study the impact of FDI on the productivity of host-country firms. FDI has positive spillovers only when foreign and domestic firms use similar technologies. Channeling FDI to sectors where firms share similar technology would significantly increase productivity spillovers from FDI. We show that inventor mobility across sectors is a key channel of technology transfer. To deal with endogeneity concerns we control for sectoral productivity growth, construct a Bartik-style instrument based on the productivity growth of neighboring countries, and exploit differences in knowledge flows across sectors captured by an asymmetric patent citation matrix.

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Bibliographic Reference

Fons-Rosen, C, Kalemli-Ozcan, S, Sørensen, B, Villegas-Sanchez, C and Volosovych, V. 2017. 'Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12205