Kiel Working Papers, Kiel Institute for World Economics
No 1560:
Spillovers through backward linkages from multinationals: Measurement matters!
Salvador Barrios, Holger Görg and Eric Strobl
Abstract: We argue that the measures of backward linkages used in
recent papers on spillovers from multinational companies are potentially
problematic, as they depend on a number of restrictive assumptions, namely
that (i) multinationals use domestically produced inputs in the same
proportion as imported inputs, (ii) multinationals have the same input
sourcing behaviour as domestic firms, irrespective of their country of
origin, and (iii) the demand for locally produced inputs by multinationals
is proportional to their share of locally produced output. We discuss why
these assumptions are likely to be violated in practice, and provide
alternative measures that overcome these drawbacks. Our results, using
plant level data for Ireland, show clearly that the choice of backward
linkage measure and thus, the assumptions behind them, matters greatly in
order to draw possible conclusions regarding the existence of FDI-related
spillovers. Using the standard measure employed in the literature we fail
to find robust evidence for spillovers through backward linkages. However,
when we use alternative measures of backward linkages that relax
assumptions (i)-(iii), we find robust evidence for positive FDI backward
spillover effects
Keywords: multinationals, backward spillovers, productivity spillovers; (follow links to similar papers)
JEL-Codes: F23,; L22; (follow links to similar papers)
29 pages, October 2009
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