Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/28362 
Year of Publication: 
2009
Series/Report no.: 
Kiel Working Paper No. 1535
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
This paper estimates the aggregate productivity effects of Marshallian externalities generated by foreign direct investments (FDI) in the US. In contrast to earlier work, this paper puts special emphasis on controlling for Marshallian externalities and other intra- and inter-regional spillovers generated by domestic firms. The productivity effects of these externalities may, if not accounted for appropriately, be falsely attributed to FDI. This paper also deals with the potential endogeneity of FDI and the presence of spatial lags by employing a system generalized method of moments (GMM) estimator. We use a regional production function framework that models Marshallian externalities and other intra- and inter-regional spillovers explicitly as determinants of total factor productivity, and tests several empirical specifications of this model, using data for US states from 19772003. The results indicate that FDI does, in fact, generate positive externalities, while those from domestic firms are negative.
Subjects: 
Foreign Direct Investment
US States
Spatial Econometrics
Marshallian Externalities
JEL: 
C31
F21
F23
Document Type: 
Working Paper

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