Foreign direct investment and firm level productivity - A panel data analysis

Gachino, Geoffrey (2007). Foreign direct investment and firm level productivity - A panel data analysis. UNU-MERIT.

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UNU-MERIT Working Papers

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  • Author Gachino, Geoffrey
    Title Foreign direct investment and firm level productivity - A panel data analysis
    Publication Date 2007
    Publisher UNU-MERIT
    Abstract This paper uses panel data to examine the effect of foreign presence on firm level productivity in the Kenyan manufacturing industry employing "traditional" and "recent" methodologies both based on production function framework. A detailed comparative behaviour between foreign and local indigenous firms showed that foreign firms dominated in virtually all the economic activities including productivity performance. Analysis of productivity determinants following traditional approach indicated a statistically significant role played by foreign presence on firm level total factor productivity thus, supporting spillover occurrence argument. However, results based on recent methodologies showed no effect of foreign presence on firm level total factor productivity hence failing to support spillover occurrence dictum. These results indicate that use of different methodologies even within the same theoretical framework can result in divergent findings. This notwithstanding, the paper further argues that use of productivity based methodologies largely masks the nature, actual processes and mechanisms through which spillovers occur. The paper therefore advocates for a "paradigm shift" in the spillover analysis techniques and recommends a broader approach with particular emphasis on technological innovations which takes into consideration learning, capability building and innovation.
    Keyword Foreign presence
    Spillovers
    Total factor productivity
    Technological innovation
    JEL C3
    F2
    L1
    L6
    O1
    O3
    Copyright Holder UNU-MERIT
    Copyright Year 2007
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    Created: Wed, 11 Dec 2013, 15:48:07 JST