1887

OECD Regional Development Working Papers

Working papers from the Regional Development Policy Division of the OECD cover a full range of topics including regional statistics and analysis, urban governance and economics, rural governance and economics, and multi-level governance. Depending on the programme of work, the papers can cover specific topics such as regional innovation and networks, the determinants of regional growth or fiscal consolidation at the sub-national level.

English

Does FDI benefit incumbent SMEs?

FDI spillovers and competition effects at the local level

That global networks provide positive externalities to participating firms is a well‑documented fact. Less is known about how the performance of non-participating firms, especially those that are small or medium-sized, changes with exposure to an increase in the presence of globally integrated firms in their vicinity. With global trade being dominated by large firms, the benefits for SMEs are often indirect, e.g. through input relationships with larger companies or through knowledge spillovers that facilitate the adoption of best practices in firms with access to globally integrated peers. This paper combines industry and regional exposure to global links in form of foreign ownership. It uses firm-level microdata for 13 OECD countries, allowing for local spillovers (or crowding out) within the same industry and across industries. Foreign investment in the firm in the same region is associated with increasing productivity of local firms, especially in form of cross-sector externalities. Horizontal (same sector) externalities are negative, especially if they are coming from foreign firms locating in distanced regions. FDI tends to be associated with employment decline in manufacturing firms, but some growth in small firms.

English

Keywords: Productivity, FDI, SME, Firms, Employment
JEL: F14: International Economics / Trade / Empirical Studies of Trade; F23: International Economics / International Factor Movements and International Business / Multinational Firms; International Business; R12: Urban, Rural, Regional, Real Estate, and Transportation Economics / General Regional Economics / Size and Spatial Distributions of Regional Economic Activity; D22: Microeconomics / Production and Organizations / Firm Behavior: Empirical Analysis; F21: International Economics / International Factor Movements and International Business / International Investment; Long-term Capital Movements
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