Cross sectoral FDI spillovers and their impact on manufacturing productivity

Edvard Orlic, Iraj Hashi, Mehtap Hisarciklilar

Research output: Contribution to journalArticlepeer-review

78 Citations (Scopus)
119 Downloads (Pure)


This paper explores the relationship between FDI spillovers and productivity in manufacturing firms in five European transition countries. The novelty of our approach lies in exploring different mechanisms of horizontal spillovers and disentangling the impact of backward and forward vertical spillovers from services and manufacturing sectors. We rely on firm level data obtained from the Amadeus database and annual input-output tables. The results from dynamic panel model estimations reveal that local manufacturing firms benefit from the presence of foreign firms in upstream services, especially in the knowledge intensive services, and in downstream manufacturing sector. Demonstration effect is found to be negatively associated with domestic firms’ productivity, while worker mobility and increased competition appear to be the main channels of horizontal knowledge diffusion. The firms’ productivity is also influenced positively by human capital and intangible assets. Finally, we show that the direction and intensity of both vertical and horizontal spillovers depend on the absorptive capacity of domestic firms.

Original languageEnglish
Pages (from-to)777-796
Number of pages20
JournalInternational Business Review
Issue number4
Early online date1 Feb 2018
Publication statusPublished - 1 Aug 2018
Externally publishedYes

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in
International Business Review. Changes resulting from the publishing process, such
as peer review, editing, corrections, structural formatting, and other quality
control mechanisms may not be reflected in this document. Changes may have
been made to this work since it was submitted for publication. A definitive version
was subsequently published in International Business Review, [27], (2018) DOI:

© 2018, Elsevier. Licensed under the Creative Commons AttributionNonCommercial-NoDerivatives 4.0 International


  • FDI
  • Productivity spillovers
  • Services
  • Vertical linkages

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Marketing


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