FDI modes and parent firms' productivity in emerging economies:Evidence from Taiwan

Chia Hui Huang, Tony Chieh Tse HouTONY, Chih Hai Yang

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

This article investigates the effect of foreign direct investment (FDI) on the productivity of parent firms for multinational enterprises in Taiwan. The current research specifically examines the potential differences in productivity effect between FDI toward developing (vertical FDI) and developed countries (horizontal FDI) and between electronics and non-electronics firms. Using panel data on Taiwan firms from 2000 to 2005, results obtained using propensity score matching (PSM) show thatmultinational firms experience a higher productivity following their FDI in developing countries. A time lag exists in productivity gain of investment to developed countries, and is relevant only to electronics firms. Employing the generalized method of moment of the panel fixed model to control for problems of endogeneity and unobservable heterogeneity, the empirical finding suggests that productivity effect caused by investing in developing countries remains significantly positive. A lagged productivity-enhancing effect is also found after FDI in developed countries for both electronics and non electronics firms.

Original languageEnglish
Pages (from-to)1240-1268
Number of pages29
JournalJournal of International Trade and Economic Development
Volume22
Issue number8
DOIs
StatePublished - Dec 2013

Keywords

  • GMM
  • horizontal FDI
  • productivity
  • propensity score matching
  • vertical FDI

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