Trade and Value Chain Participation: Domestic Firms and FDI Spillovers in Africa
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Date
2022-07
Authors
Hoekman, Bernard
Sanfilippo, Marco
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Abstract
Data on the location of foreign direct investment (FDI) projects within and across
African nations are combined with firm-level survey data and information on sectoral
input-output relationships to assess what types of FDI are more likely to influence
participation in global value chains (GVCs), and to investigate the relationship between
FDI and the performance of proximate domestic firms. Firm-level analysis finds
evidence of vertical spillovers from exposure to FDI, mainly in the manufacturing
sector: domestic firms located near FDI projects that offer potential supply or demand
linkages are more likely to engage in trade through imports or exports. Proximity to
FDI projects in the same sector (horizontal linkage) is less likely to affect trade or
GVC performance of domestic firms. Both vertical and horizontal FDI linkages are
associated with higher labour productivity and other dimensions of performance.