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Foreign investment and productivity growth in Czech enterprises, Volume 1
 
Author:Djankov, Simeon; Hoekman, Bernard; Collection Title:Policy, Research working paper ; no. WPS 2115
Country:Czech Republic; Date Stored:1999/09/14
Document Date:1999/05/31Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; Small Scale Enterprise; International Terrorism & Counterterrorism; Economic Theory & Research; General Technology; Microfinance; ICT Policy and Strategies; Private Participation in InfrastructureLanguage:English
Major Sector:Public Administration, Law, and JusticeRegion:Europe and Central Asia
Report Number:WPS2115Sub Sectors:Public Financial Management
Volume No:1  

Summary: Firm-level data for the Czech Republic (1992-96) suggest that foreign investments had a positive impact on recipient firms' total factor productivity (TFP) growth. This result is robust to corrections for the sample-selection bias that prevails because foreign investment tends to go to firms with above-average productivity performance. This result is not surprising, given the presumption that foreign investors transfer new technologies and knowledge to partner firms. With some lag, this is likely to be reflected in greater TFP growth. Foreign direct investment appears to have a greater impact on TFP growth than joint ventures, suggesting that parent firms are transferring more know-how (soft or hard) to affiliates than joint venture firms get from their partners. Joint ventures and foreign direct investment together appear to have a negative spillover effect on firms that do not have foreign partnerships. This effect is relatively large and statistically significant. But if the focus is restricted to the impact of foreign-owned affiliates (foreign direct investment) on all other firms in an industry, the magnitude of the negative effect becomes much smaller and loses statistical significance. This result, together with the fact that joint ventures and foreign direct investment together account for significant shares of total output in many industries, suggests that more research is needed to determine how much knowledge diffuses from firms with strong links to foreign firms to firms that do not have such links. Especially important is the extent of spillovers among joint venture firms and between foreign affiliates and firms with joint ventures. Insofar as joint venture firms invest in technological capacity (as suggested by their training efforts), those firms could be expected to be better able to absorb and benefit from the diffusion of know-how. The absence of such capacity may underlie the observed negative spillover effect on other firms in the industry. Longer time series and collection of data on variables that measure firms' in-house technological effort would help identify the magnitude and determinants of technological spillovers.

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