Foreign Direct Investment and Productivity Spillovers: the Experience of ASEAN Countries

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Abstract This paper aims at investigating the productivity spillover effects of FDI inflows to ASEAN countries. A first contribution is related to the development of an original theoretical model of complex multinational firms which simultaneously explores backward and forward linkages due to FDI. As a second contribution, the significance of vertical productivity spillovers in ASEAN countries is tested empirically. For that purpose, and given the lack of data at firm level, the causal relationship between FDI and productivity is investigated by using country specific data. Several alternative causality tests are implemented, including both direct and indirect approaches. The main results give strong evidence that FDI causes productivity growth in ASEAN countries. These results correlate the prediction of the theoretical model, which provide a strong support for the relationship between FDI and productivity spillovers.