Cross sectoral FDI spillovers and their impact on manufacturing productivity

This paper explores the relationship between FDI spillovers and productivity in manufacturing firms in five European transition countries. The novelty of our approach lies in separating the impact of vertical linkages from services and manufacturing sectors. For this purpose, we rely on firm level data obtained from the Amadeus database and annual input-output tables. The results from a dynamic panel model reveal that local manufacturing firms benefit from the presence of foreign firms in upstream services, especially in the knowledge intensive services, and in downstream manufacturing sector while the effect of intra-industry spillovers and manufacturing forward linkages are negative. The firms’ productivity is also influenced positively by human capital and intangible assets. The results for intra-industry spillovers suggest attenuating effects for higher levels of firms’ absorptive capacity in some countries.