71st International Atlantic Economic Conference

March 16 - 19, 2011 | Athens, Greece

How much do the Technological Gap, Firm Size, and Location Matter for Spillovers?

Saturday, 19 March 2011: 15:10
Filippo Reganati, Ph.D , Coris, University of Rome,La Sapienza, Rome, Italy
Cesare Imbriani, Ph.D , Istituto Economia e Finanza, University of Rome, La Sapienza, Rome, Italy
Rosanna Pittiglio, Ph.D , Second University of Naples, Capua (CE), Italy
Edgardo Sica, Ph.D. , Dseagmeg, University of Foggia, Foggia, Italy
Objectives

This paper aimed to verify the presence of FDI-related spillovers from MNEs in the Italian manufacturing sector both at an intra-industry and at an inter-industry level, by taking into account different dimensions of the Italian productive system. In particular, it analyzed the absorptive capacity of Italian firms on the basis of (i) the technological gap between domestic and foreign firms, (ii) the domestic firm size, and (iii) the regional composition of Italian economy.

Data/Methods

The empirical analysis has been conducted by using firm-level data from the AIDA database provided by the Bureau Van Dijk. The AIDA database collects annual accounts of Italian corporate enterprises and contains information on a wide set of economic and financial variables, such as sales, costs and number of employees, value added, fixed tangible assets, R&D, start-up year, as well as the sector of activity and ownership status. By omitting all observations for which the necessary data are incomplete, we obtained an unbalanced panel of 560,000 observations, over the period 2002-2007. In our empirical strategy, we first estimate TFP using the semi-parametric approach suggested by Olley and Pakes (1996) and then modified by Levinsohn and Petrin (2003). In the second step, we relate the total factor productivity to the foreign presence variables (specifically: horizontal, backward and forward spillovers) and other control variables (specifically: the level of competition within the sector, the economies of scale, and firm fixed effects).

Results/Expected Results

 Results suggest al least five interesting conclusions. Firstly, local firms seem to not benefit from the presence of foreign companies in their sector since the horizontal spillovers seem to be positive but insignificant positive. At the same time, we find that backward spillovers tend to be positive but not significant while the forward ones are positive and significant: in line with the theoretical reasoning underlying the spillover channels, our findings suggest that being a customer of foreign companies has a beneficial effect on a firm’s productivity. Secondly, when spillovers exist, they tend to be highly non-linear: in particular, the effect of both horizontal and forward spillovers is positive up to a certain level of foreign ownership, but turns negative after the foreign presence exceeds a certain threshold; on the opposite, the backward spillovers are negative up to a certain threshold of foreign presence in the downstream sector, after which the effect turns positive. Thirdly, we find some positive spillovers in the group of firms with a low-medium absorptive capacity, as these most probably have a productivity gap to fill. Fourthly, medium-sized companies are able to benefit most from spillovers. This hypothesis is supported for horizontal spillovers while forward spillovers are found to be positive for small sized firms. Fifthly, positive horizontal spillovers are present only in the North-Western area, being significant but negative in the Centre of Italy, positive but not significant in the North-Eastern regions, and negative but not significant in the South.