13 November 2017

Most downloaded research from the European Economics Review

Professors John Rand and Finn Tarp from the Development Economics Research Group (DERG) at the Department of Economics have together with Trinity College, Dublin Professor Carol Newman and Theo Talbot published a comprehensive research study in the European Economics Review (EER), which is now registered as the most downloaded research from the EER.

Their paper titled Technology transfers, foreign investment and productivity spillovers is one among the many outputs from DERG’s more than 15 years of research collaboration in Vietnam, covering a range of research areas and topics. The EER paper explores the relationship between foreign direct investment (FDI) and the productivity of host country domestic firms; relying on a survey of over 4,000 manufacturing firms in Vietnam. The survey was specially designed by the research team to explore issues of innovation and corporate social responsibility (CSR), and it links up to the national enterprise survey implemented annually with the General Statistics Organisation (GSO).

More specifically, the study separates out productivity gains along the supply chain (obtained through direct transfers of knowledge/technology between linked firms) from productivity effects through indirect FDI spillovers. In addition to identifying indirect vertical productivity spillovers from FDI, the results show that there are productivity gains associated with direct linkages between foreign-owned and domestic firms along the supply chain. This includes evidence of productivity gains through forward linkages for domestic firms which receive inputs from foreign-owned firms. As such, the findings imply that the standard measures used in the literature to capture FDI spillovers do not adequately account for the effects of direct linkages or technology transfers between foreign and domestic firms.

The new evidence on the interaction between FDI and private domestic firms can help inform the debate on the desirability of attracting FDI. In particular, while there are indirect spillovers associated with FDI that provide benefits beyond those internalized through market transactions, a large part of the spillover from FDI, particularly forward spillovers, accrues to firms which are directly linked to FDI input suppliers. This implies that policies aimed at attracting FDI should be continued – but also that they ought to be coupled with supporting improved conditions for the direct transfer of knowledge between firms.

You can read the entire paper here