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 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.

Bibliographic Details

Main Authors:	Sanchez-Martin, Miguel Eduardo, De Pinies, Jaime, Antoine, Kassia
Language:	English en_US
Published:	World Bank Group, Washington, DC 2015-01
Subjects:	AUTOMOBILE, AVAILABILITY OF DATA, BENCHMARK, BENCHMARKING, BRANCH, BUSINESS ENVIRONMENT, CAPITAL FLOWS, CAPITAL FORMATION, CAPITAL INFLOWS, CAPITAL MOVEMENTS, CENTRAL BANK, CERTIFICATE, CERTIFICATES, COMMERCIAL BANK, COMMERCIAL BANK LOANS, COMMODITIES, COMMODITY, COMPANY, COMPETITIVENESS, COMPETITORS, CONNECTIVITY, CONTRACTUAL ARRANGEMENTS, CORRELATION MATRIX, CUSTOM, CUSTOMS, DATA LIMITATIONS, DEBT, DEFICITS, DEMONSTRATION EFFECTS, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIVERSIFICATION, DOMESTIC FIRMS, DOMESTIC SUPPLIERS, ECONOMETRICS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC INTEGRATION, ECONOMIC POLICY, ECONOMIC SIZE, ECONOMIES OF SCALE, EMPLOYMENT, ENABLING ENVIRONMENT, ENDOGENOUS VARIABLES, ENTERPRISE SURVEY, ENTERPRISE SURVEYS, ENTREPRENEURS, EQUIPMENT, EQUITY FLOWS, EQUITY INVESTMENTS, EXOGENOUS VARIABLES, EXPORT PROCESSING ZONES, EXPORTS, EXTERNALITIES, FDI, FINANCIAL CRISIS, FINANCIAL MARKETS, FOREIGN ACQUISITION, FOREIGN AFFILIATE, FOREIGN AFFILIATES, FOREIGN CAPITAL, FOREIGN CAPITAL PARTICIPATION, FOREIGN COMPANIES, FOREIGN DIRECT INVESTMENT, FOREIGN FIRM, FOREIGN FIRMS, FOREIGN INVESTMENT, FOREIGN INVESTMENT POLICY, FOREIGN INVESTOR, FOREIGN INVESTORS, FOREIGN MARKET, FOREIGN OWNERSHIP, FOREIGN PARTICIPATION, FOREIGN TECHNOLOGIES, FOREIGN TECHNOLOGY, FOREIGN TRADE, FREE TRADE, FUTURE RESEARCH, GDP, GLOBAL ECONOMY, GLOBALISATION, GLOBALIZATION, GROSS FIXED CAPITAL FORMATION, GROWTH POTENTIAL, GROWTH RATE, HOST COUNTRIES, HOST COUNTRY, HOST ECONOMIES, HOST ECONOMY, HUMAN CAPITAL, INDUSTRIAL DEVELOPMENT, INFLATION, INSTITUTIONAL FRAMEWORK, INTERNATIONAL BUSINESS, INTERNATIONAL COMPARISONS, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL, INTERNATIONAL INVESTMENT, INTERNATIONAL TRADE, JOINT VENTURE, JOINT VENTURES, KNOWLEDGE DIFFUSION, LICENSES, LIQUIDITY, LOCAL INDUSTRIES, LOCAL INDUSTRY, MACROECONOMIC STABILITY, MANUFACTURERS, MANUFACTURING, MANUFACTURING INDUSTRIES, MANUFACTURING SECTORS, MARKET ENTRY, MARKET INFORMATION, MARKET SHARE, MERGERS, MICROECONOMIC ANALYSES, MIGRATION, MNC, MULTINATIONAL, MULTINATIONAL COMPANIES, MULTINATIONAL CORPORATIONS, MULTINATIONALS, NATURAL RESOURCES, NEW TECHNOLOGIES, NEW TECHNOLOGY, OPEN ACCESS, PARTNERSHIP AGREEMENT, PATENTS, POLITICAL ECONOMY, PORTFOLIO INVESTMENTS, POSITIVE EXTERNALITIES, PROCUREMENT, PRODUCTION COSTS, PRODUCTION PROCESS, PRODUCTION PROCESSES, PRODUCTIVITY, PRODUCTIVITY INCREASES, PROPERTY RIGHTS, R&D, REAL GDP, RELIABILITY, RESULT, RESULTS, SAVINGS, SHAREHOLDERS, SUBSIDIARIES, SUBSIDIARY, SUPPLIER, SUPPLY CHAIN, TAXONOMY, TECHNOLOGY INTENSITY, TECHNOLOGY TRANSFER, TECHNOLOGY TRANSFERS, TIME PERIOD, TRADE COMPETITIVENESS, TRADE FLOWS, TRANSACTION, TRANSPORT, VALUE ADDED, VALUE CHAIN, VALUE CHAINS, WAGES, WEB,
Online Access:	http://documents.worldbank.org/curated/en/2015/01/23951584/measuring-determinants-backward-linkages-fdi-developing-economies-matter-size https://hdl.handle.net/10986/21440
Tags:	Add Tag No Tags, Be the first to tag this record!