Jože P. Damijan

The role of FDI, R&D accumulation and trade in transferring technology to transition countries: evidence from firm panel data for eight transition countries

Abstract This paper examines different channels of global technology transfer to transition countries. We study the impact of direct technology transfer through FDI, intra-industry knowledge spillovers from FDI, firm’s own R&D accumulation and R&D spillovers through trade for total factor productivity (TFP) growth of local firms. Using firm-level data for eight transition countries for the period 1994–1998, we found that technology is being primarily transferred to local firms through direct foreign linkages. Our results also suggest that FDI do not generate positive intra-industry spillovers for domestic firms.

From Innovation to Exporting or Vice Versa

Firm productivity and export decisions are closely related to innovation activity. Innovation may play a more important role in the decision to start exporting, and successful exporting may drive process innovation. This suggests that the causality between innovation and exporting may run in both directions. Using detailed microdata from innovation surveys, industrial production surveys, and trade information for Slovenian firms in 1996–2002, we investigate the bidirectional causal relationship between firm innovation and export activity. We find no evidence for the hypothesis that either product or process innovations increase the probability of becoming a first-time exporter, but we do find evidence in both the innovation survey and the industrial production survey that exporting leads to productivity improvements. These, however, are likely to be related to process rather than product innovations, and are observed only in a sample of medium and large first-time exporters. This finding makes a case in favour of the learning-by-exporting hypothesis by demonstrating that these learning effects from exporting occur through the mechanism of process innovation enhancing firm technical efficiency.

Technology Transfer Through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?

The paper exploits a large set of more than 8,000 firms for ten advanced transition countries in order to uncover the importance of different channels of technology transfer through FDI and its impact on productivity growth of local firms. In addition to direct effects, we also distinguish between intra-industry (horizontal) and inter-industry (vertical) spillovers from foreign owned firms to local firms. After correcting for foreign investment selection bias and controlling for endogeneity of input demand (using a dynamic system GMM approach), direct FDI effects were found to provide by far the most important productivity effect for local firms in transition countries. Direct effects of FDI are found to provide on average an impact on firm???s productivity that is larger by factor 50 than the impact of backward linkages and by factor 500 larger than the impact of horizontal spillovers.

Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries

This paper presents a comparative study of the importance of direct technology transfer and spillovers through FDI on a set of ten transition countries, using a common methodology and appropriate methods to account for selection and simultaneity correction. This paper considers by far the largest firm level dataset (more than 90,000 firms) used by any study on the spillover effects of FDI. The main novelty of the paper is the explicit control for various sources of firm heterogeneity when accounting for different effects of FDI on firm performance. Controlling for these variables leads to some interesting results which contrast with the previous empirical work in the field. We find that horizontal spillovers have become increasingly important over the last decade, and they may even become more important than vertical spillovers. Furthermore, this work shows that the heterogeneity of firms in terms of absorptive capacity, size, productivity and technology levels affect the results. These findings suggest that both direct effects from foreign ownership as well as the spillovers from foreign firms substantially depend on the absorptive capacity and productivity level of individual firms. Only more productive firms and firms with higher absorptive capacities are able to both compete with foreign affiliates in the same sector and benefit from the increased upstream demand for intermediates generated by foreign affiliates. In addition, these results show that foreign presence may also affect smaller firms to a larger extent than larger firms, but this impact may be in either direction.

Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central- and Eastern European Countries

This paper analyses the importance of taxes on corporate income and production-related tangible infrastructure as determinants of foreign direct investment (FDI) in Central and Eastern European countries (CEECs). We operationalise taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment. In the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of FDI - an issue usually neglected in the literature. Specifically, a favourable infrastructure endowment may compensate for relatively high taxes. Hence, higher taxes may not deter FDI. The results from our panel econometric analysis of bilateral outward FDI flows of seven home countries in eight CEECs for the 1995-2004 period in an augmented gravity model setting show that (i) both taxes and infrastructure play a role in the location decisions made by multinational enterprises; (ii) telecommunication and transport infrastructure are of special significance to FDI; and (iii) the tax-rate sensitivity of FDI indeed decreases with the level of infrastructure endowment. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

Outward FDI and Productivity: Micro-evidence from Slovenia

This paper uses a rich data set of Slovenian manufacturing firms active in the period 1994-2002 that contains information on outward FDI and exports to different markets in order to test three empirical hypotheses that relate the decision for outward FDI to total factor productivity. First, the evidence supports the hypothesis proposed by Helpman, Melitz and Yeaple (2004) that more productive firms are more likely to invest in a foreign affiliate. Second, the hypothesis proposed by Head and Ries (2003 ) that less productive firms may be encouraged to invest in low-income countries is rejected by the data. However, the main contribution of the paper is to confirm the third hypothesis that required firms productivity increases with the number of markets that the firm serves, i.e. there is a positive relationship between the number of a firms foreign affiliates and its total factor productivity. Copyright 2007 The Authors Journal compilation 2007 Blackwell Publishing Ltd .

Learning from Trade Through Innovation: Causal Link Between Imports, Exports and Innovation in Spanish Microdata

The paper explores the learning from trade hypothesis. Standardized research approach searchs for learning e¤ects from trade focusing solely on exports, whereby …rm’s learning e¤ects are accounted in the form of total factor productivity improvements. In contrast, this papers de…nes a …rm learning from trade in terms of introduction of either new products or processes induced by its import and export links with foreign markets. By using microdata for a large sample of Spanish …rms, including data on innovation and trade, we …nd clear sequencing between imports, exports and innovation. The results suggest that …rms learn primarily from import links, which enables them to innovate products and processes and to dress up for starting to export. In a sequence, exporting may enable …rms to introduce further innovations. These positive learning e¤ects from trade, however, seem to be limited to small and partially medium …rms only. On the other side, …rms that are closer to the relevant technological frontier seem to bene…t more from trading activities in terms of innovation than the technological laggard fi…rms.

Innovation and Firms’ Productivity Growth in Slovenia: Sensitivity of Results to Sectoral Heterogeneity and to Estimation Method

The paper examines implications of endogenous growth theory on the relationship between innovation and firm productivity (productivity growth) by combining information on firm-level innovation (CIS) with accounting data for a large sample of Slovenian firms in the period 1996–2002. We employ several different estimation methods in order to control for the endogeneity of innovation and idiosyncratic firm characteristics. We find a significant and robust link between productivity levels and firm propensity to innovate, while the results on the link between innovation activity and productivity growth are not robust to different econometric approaches. Although OLS estimates indicate that successful innovation positively impacts productivity growth, further analysis reveals that these results are mainly driven by the exceptional performance of a specific group of services firms located in the fourth quintile with respect to size, productivity and R&D propensity measure. Estimates based on matching techniques, on the other hand, do not reveal any significant positive effects of innovation on productivity growth, regardless of the sectors, firm size and type of innovation.

Does International Openness Affect Productivity of Local Firms? Evidence from Southeastern Europe

This paper examines the role of international openness on the change of firm productivity in Southeastern Europe (SEE). This is a crucial question for middel income countries. Using firm-level date for six transition economies over the period 1994-2002, we identify whether foreign ownership and propensity to trade with more advanced countries can bring about higher learning effects. We find that (i) foreign ownership has helped at restructuring and enhancing productivity of local firms in four out of six countries, (ii) exporting to advanced markets has a larger impact on productivity growth in four countries, especially when firms absorptive capacity is taken into account, (iii) in contrast, exporting to the less competitive markets of ex-Yugoslavia seems to affect negatively the productivity growth in three countries, and (iv) learning effects from importing follow a similar path than exporting. Our results suggest that trade liberalisation is not uniformly beneficial. Regional composition of trade flows and absorptive capacity of local firms matter. Trade liberalisation within the SEE region thus may not provide a substitute for a general trade liberalisation and access to the more competitive markets of OECd countries.

Import Churning and Export Performance of Multi‐Product Firms

This paper analyzes the impact of churning in the imported varieties of capital and intermediate inputs on firm export scope and productivity. Using detailed data on imports and exports at the firm–product-market level, we document substantial churning in both imports and exports for the Slovenian manufacturing firms in the period 1994-2008. On average, a firm changes about one quarter of imported and exported product-markets every year, while gross churning in terms of added and dropped product-markets is almost three times higher. A substantial share of this product churning is due to simultaneous imports and exports of firms in identical varieties within the same CN-8 product code (so called pass-on-trade). We find that churning in imported varieties is far more important than reduction in tariffs or declines in import prices for firms’ productivity growth and increased export product scope. We also find that gross churning has a bigger impact on firm productivity improvements by a factor of more than 10 in comparison to the net churning. Both adding and dropping of imported input varieties thus seem to be of utmost importance for firms aiming to optimize their input mix towards their most valuable inputs. These effects are further enhanced when excluding the simultaneous trade in identical varieties, suggesting that pass-on-trade has less favorable effects on firms’ long-run performance than regular trade.