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Title:Spillovers through backward linkages from multinationals: Measurement matters! PDF Logo
Authors:Barrios Cobos, Salvador
Görg, Holger
Strobl, Eric
Issue Date:2009
Series/Report no.:CEPR Discussion Paper Series, Centre for Economic Policy Research (CEPR), London 7491
Abstract:We argue that the measures of backward linkages used in recent papers on spillovers from multinational companies are potentially problematic, as they depend on a number of restrictive assumptions, namely that (i) multinationals use domestically produced inputs in the same proportion as imported inputs, (ii) multinationals have the same input sourcing behaviour as domestic firms, irrespective of their country of origin, and (iii) the demand for locally produced inputs by multinationals is proportional to their share of locally produced output. We discuss why these assumptions are likely to be violated in practice, and provide alternative measures that overcome these drawbacks. Our results, using plant level data for Ireland, show clearly that the choice of backward linkage measure and thus, the assumptions behind them, matters greatly in order to draw possible conclusions regarding the existence of FDIrelated spillovers. Using the standard measure employed in the literature we fail to find robust evidence for spillovers through backward linkages. However, when we use alternative measures of backward linkages that relax assumptions (i)-(iii), we find robust evidence for positive FDI backward spillover effects.
JEL:F23
L22
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW

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