Measuring the Determinants of Backward Linkages from FDI in Developing Economies : Is it a Matter of Size?
The main focus of the paper is the measurement of the potential for externalities related to foreign direct investment. A series of novel proxies are drawn from the Enterprise Survey database of the World Bank-IFC and tested against hypotheses cons...
| Main Authors: | , , |
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| Format: | Publications & Research |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/01/23951584/measuring-determinants-backward-linkages-fdi-developing-economies-matter-size http://hdl.handle.net/10986/21440 |
| Summary: | The main focus of the paper is the
measurement of the potential for externalities related to
foreign direct investment. A series of novel proxies are
drawn from the Enterprise Survey database of the World
Bank-IFC and tested against hypotheses considered in the
foreign direct investment literature. Using these proxies,
an econometric assessment of the determinants of backward
linkages in developing economies is presented. The results
show that export-oriented foreign direct investment, wholly
owned subsidiaries (as opposed to joint ventures), and
foreign owned firms relying on foreign technologies are less
likely to develop links with domestic companies. In
addition, the analysis finds that some sectors (food, wood,
auto, and auto-parts) are more prone than others (textiles
and electronics) in developing backward linkages. Apart from
the type of foreign direct investment and sector-specific
characteristics, the size of the host economy matters.
Foreign owned subsidiaries in most service oriented
Caribbean islands buy a low percentage of inputs from
domestic firms. This may be because in small islands there
are not enough local suppliers with sufficient quality and
capacity to meet the demands of multinationals. However, the
paper presents the case of the Dominican Republic, the
largest economy in the Caribbean, which has struggled to
develop backward linkages because of the relative isolation
of special economic zones from the rest of the economy. |
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