Horizontal or Backward? FDI Spillovers, Input-Output Tables and Industry Aggregation. Karolien Lenaerts and Bruno Merlevede

Transcription

1 Horizontal or Backward? FDI Spillovers, Input-Output Tables and Industry Aggregation Karolien Lenaerts and Bruno Merlevede

2 Outline Overview of the Literature Research Topic in the Paper Empirical Approach & Data Estimation Results Conclusions 2

3 Overview of the Literature

4 Foreign Direct Investment Governments all over the world develop policies to attract multinationals (MNEs) Benefit from both direct and indirect effects of multinational activity: - direct effects: employment, infrastructure - indirect effects: FDI spillovers 4

5 FDI Spillovers Markusen (1995): when investing abroad, MNEs bring proprietary technology with them to compete with local firms MNE invests & brings technology Technology leaks or is transferred intentionally The technology is adopted by domestic firms, raising their productivity level FDI Spillovers 5

6 FDI Spillovers horizontal and vertical FDI spillovers Supply Chain raw materials final goods Upstream Supplier backward spillover Foreign Subsidiary forward spillover Downstream Customer 6 horizontal spillover Local Competitor goods spillovers

7 Research Topic in the Paper

8 Research topic in the paper Link with the literature: - mixed empirical evidence on FDI spillovers - many different explanations Our contribution: importance of the level of industry aggregation in input-output tables 8

9 Research topic in the paper Focus: level of industry aggregation in the input-output (IO) tables Why? - spillovers are constructed from IO-tables technical coefficients of vertical spillovers - level of aggregation in the IO-tables determines classification in horizontal or vertical spillovers 9

10 FDI Spillovers FDI spillovers: computation Proxy for the share of industry j s output produced by foreign firms Proxy for the foreign presence in industries supplied by industry j (linkages between MNEs and suppliers) Proxy for the foreign presence in industries that supply industry j (linkages between MNEs and clients) 10

11 Horizontal or vertical? IO-tables at aggregated and detailed level of industry aggregation Industry a b a b a b Intermediate Consumption a b a b a b Industry a b a b a b Intermediate Consumption a b a b a b 11

12 Importance of the diagonal Consider specific sectors: X / within NACE 2-digit intermediate supply X / total intermediate supply FOOD 26 % 12.1% CHEMICALS 47% 6.5% MINERAL PRODUCTS 37% 4.3% X = off-diagonal elements within the same 2-digit industry 12

13 Research topic in the paper Additional research question: Inclusion of within-industry intermediate supply and use of goods (include the diagonal of the IO-table) BK as supplier-customer relationship potential solution when tables are aggregated? 13

14 Empirical Strategy & Data

15 Empirical Strategy Havranek & Irsova (JIE, 2011): best practice Javorcik (AER, 2004) FDI spillover analysis: two-step estimation procedure in a production function framework Two-step estimation procedure - first step: estimate total factory productivity (TFP) - second step: relate the estimated TFP to FDI spillover variables, control variables, time, industry and region dummies 15

16 Empirical Strategy First step: estimate total factor productivity Issue: (potential) endogeneity between input choices and productivity OLS estimates will be biased Alternative methods: OP, LP, ACF, DPD Alternative specification: translog 16

17 Empirical Strategy Second step: relate the estimated TFP to FDI spillover variables, control variables and time, region and industry dummies Equation to estimate: TFP ijrt = α i + ψ 1 f(fdi jt-1 ) + ψ 2 Z i(j)t-1 + ξ ijrt TFP ijrt = ψ 1 f(fdi jt-1 ) + ψ 2 Z i(j)t-1 + α t + α j + α r + ε ijrt 17

18 Data Romanian manufacturing firms with at least five employees on average ( ) Data sources: - firm-level data: Amadeus database Bureau Van Dijk - input-output tables: Romanian Statistical Office detailed input-output table (NACE 3) collapse to more aggregated level (NACE 2) 18

19 Data Why Romania? Excellent coverage in the Amadeus database Characteristics of FDI in Romania: - entry in the late 1990s - concentrated in manufacturing industries Note: stylized facts confirmed: foreign firms are larger (labour, capital, output) and more productive 19

20 Estimation Results

21 Estimation results Aggregated versus detailed input-output tables: zero-diagonal definition ACF OP DPD TL Agg. Det. Agg. Det. Agg. Det. Agg. Det. HOR 1.908** 1.205*** 0.578** 0.344* 0.543** 0.327* 0.579** 0.346** [0.734] [0.463] [0.240] [0.175] [0.239] [0.177] [0.242] [0.176] BK ** 1.426* 1.059*** 1.367* 1.071*** 1.287* 1.027*** [1.746] [0.958] [0.752] [0.330] [0.731] [0.325] [0.745] [0.328] # obs. 73,255 73,255 96,681 96,681 96,728 96,728 96,728 96,728 R² ***/**/* denotes significance at 1/5/10 percent 21

22 Estimation results The level of industry aggregation matters! ACF OP DPD TL Agg. Det. Agg. Det. Agg. Det. Agg. Det. HOR 1.908** 1.205*** 0.578** 0.344* 0.543** 0.327* 0.579** 0.346** [0.734] [0.463] [0.240] [0.175] [0.239] [0.177] [0.242] [0.176] BK ** 1.426* 1.059*** 1.367* 1.071*** 1.287* 1.027*** [1.746] [0.958] [0.752] [0.330] [0.731] [0.325] [0.745] [0.328] # obs. 73,255 73,255 96,681 96,681 96,728 96,728 96,728 96,728 R² ***/**/* denotes significance at 1/5/10 percent 22

23 Estimation results The level of industry aggregation matters! ACF OP DPD TL Agg. Det. Agg. Det. Agg. Det. Agg. Det. HOR 1.908** 1.205*** 0.578** 0.344* 0.543** 0.327* 0.579** 0.346** [0.734] [0.463] [0.240] [0.175] [0.239] [0.177] [0.242] [0.176] BK ** 1.426* 1.059*** 1.367* 1.071*** 1.287* 1.027*** [1.746] [0.958] [0.752] [0.330] [0.731] [0.325] [0.745] [0.328] # obs. 73,255 73,255 96,681 96,681 96,728 96,728 96,728 96,728 R² ***/**/* denotes significance at 1/5/10 percent 23

24 Estimation results The level of industry aggregation matters! ACF OP DPD TL Agg. Det. Agg. Det. Agg. Det. Agg. Det. HOR 1.908** 1.205*** 0.578** 0.344* 0.543** 0.327* 0.579** 0.346** [0.734] [0.463] [0.240] [0.175] [0.239] [0.177] [0.242] [0.176] BK ** 1.426* 1.059*** 1.367* 1.071*** 1.287* 1.027*** [1.746] [0.958] [0.752] [0.330] [0.731] [0.325] [0.745] [0.328] # obs. 73,255 73,255 96,681 96,681 96,728 96,728 96,728 96,728 R² ***/**/* denotes significance at 1/5/10 percent 24

25 Estimation results The level of industry aggregation matters! Aggregated table: horizontal Detailed table: horizontal and backward Upward bias of horizontal spillover coefficient Bias against finding significant backward spillovers Results hold for FE and LP 25

26 Estimation results Zero-diagonal or non-zero-diagonal? ACF OP Agg. Det. Agg. Det. zero non-zero zero non-zero zero non-zero zero non-zero HOR 1.908** 2.020** 1.205*** ** 0.700* 0.344* [0.734] [1.002] [0.463] [0.497] [0.240] [0.382] [0.175] [0.190] BK ** 2.344** 1.426* *** 0.923*** [1.746] [1.964] [0.958] [1.004] [0.752] [0.710] [0.330] [0.323] # obs. 73,255 73,255 73,255 73,255 96,681 96,681 96,681 96,681 R² ***/**/* denotes significance at 1/5/10 percent 26

27 Estimation results Zero-diagonal or non-zero-diagonal? ACF OP Agg. Det. Agg. Det. zero non-zero zero non-zero zero non-zero zero non-zero HOR 1.908** 2.020** 1.205*** ** 0.700* 0.344* [0.734] [1.002] [0.463] [0.497] [0.240] [0.382] [0.175] [0.190] BK ** 2.344** 1.426* *** 0.923*** [1.746] [1.964] [0.958] [1.004] [0.752] [0.710] [0.330] [0.323] # obs. 73,255 73,255 73,255 73,255 96,681 96,681 96,681 96,681 R² ***/**/* denotes significance at 1/5/10 percent 27

28 Estimation results Zero-diagonal or non-zero-diagonal? Aggregated table: no impact Detailed table: horizontal effect disappears No solution for the biases 28

29 Estimation results Contribution to TFP level sector 15 29

30 Estimation results Contribution to TFP level sector 24 30

31 Conclusions

32 Conclusions Literature: mixed evidence of FDI spillovers channels, determinants, measurement In this paper: - level of industry aggregation in IO-tables matters - zero-diagonal versus non-zero-diagonal definition In the analysis of FDI spillover effects, use IO-tables with a sufficiently detailed industry classification! 32