Potential and Actual FDI Spillovers in Global Value Chains The Role of Foreign Investor Characteristics, Absorptive Capacity and Transmission Channels

Abstract

Using unique survey data on direct supplier-multinational linkages in Chile, Ghana, Kenya, Lesotho, Mozambique, Swaziland, and Vietnam, this paper fi rst evaluates how foreign investors differ from domestic producers in terms of their potential to generate positive spillovers for local suppliers. It fi nds that foreign fi rms outperform domestic producers on several indicators, but have fewer linkages with the local economy and offer less supplier assistance, resulting in offsetting effects on the spillover potential. The paper also studies the relationship between foreign investor characteristics and linkages with the local economy as well as assistance extended to local suppliers. It fi nds that foreign investor characteristics matter for both.Additionally, this paper examines the role of suppliers’ absorptive capacities in determining the intensity of their linkages with multinationals. The results indicate that several supplier characteristics matter, but these effects also depend on the length of the supplier relationship. Finally, the paper assesses whether assistance or requirements from the multinational infl uence spillovers on suppliers. The results confi rm the existence of positive effects of assistance (including technical audits, joint product development, and technology licensing) on foreign direct investment spillovers, while we fi nd no evidence for demand effects

Keywords

• foreign direct investment
• vertical spillovers
• linkages
• global value chains
• foreign fi rm characteristics
• absorptive capacity
• transmission channels
• agri-business
• apparel
• mining