FDI and productivity growth: the role of inter-industry linkages

FDI and productivity growth: the role of inter-industry linkages

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Article ID: iaor20106980
Volume: 43
Issue: 4
Start Page Number: 1243
End Page Number: 1272
Publication Date: Nov 2010
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors:
Abstract:

There is a large literature on the effects of foreign direct investment (FDI) on productivity through inter-industry economic linkages. This paper contributes to the literature by focusing on the developed economy of Canada. It finds that FDI generates strong effects on total factor productivity (TFP) growth through both forward and backward inter-industry linkages, and increase in an industry's absorptive capacity raises the effects of FDI on TFP growth through forward inter-industry linkages. For R&D intensive industries, the effects of FDI on TFP growth through inter-industry linkages are small, but imports turn out to be an important source for TFP growth.

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