ABSTRACT

Foreign direct investment impacts on the economic performance of host countries directly and indirectly by contributing to capital savings, increasing production capacity and bringing along technology diffusion and management skills. Indirect benefits from multinational firms are usually referred to as spillover effects of foreign direct investment. Spillover effects result from a number of sources, including the linkages formed between domestic and foreign owned firms, namely multinationals, and increased competition in the domestic market. A recent literature review suggests that the interaction of domestic firms with multinationals can also affect the export decision and performance of domestic firms i.e. create export spillovers (Görg and Greenaway, 2004; Greenaway and Kneller, 2004; Ruane and Sutherland, 2004; Kneller and Pisu, 2007; Wagner, 2007; Bajgar and Javorcik, 2013). Compared to the vast literature which investigates the impact of foreign direct investment on productivity (i.e. productivity spillovers),1 relatively little effort has been spent on export spillovers. This is despite the fact that firms’ involvement in international markets might reduce the costs of entering into these markets for non-exporting firms i.e. non-exporting firms gain the opportunity to learn to export from other firms’ export experience which is a phenomenon termed as export spillovers by Aitken et al. (1997).