Productivity spillovers from foreign direct investment in the Brazilian processing industry

Abstract

The increasing importance of foreign direct investment (FDI) to international production has prompted considerable interest in its real effects on host economies all over the world. The aim of this study was investigate whether the presence of FDI produces productivity spillovers in Brazilian processing industries. We conduct our analysis using a panel database on twenty-three Brazilian processing industries and applied Moderated Multiple Regression (MMR) and Generalized Linear Models (GLM) analysis of variance to address potential spillover effects from foreign presence. This paper finds evidences of the coexistence of both positive and negative effects arising from FDI on the productivity of Brazilian industries. We found negative effects for FDI presence in labor-intensive industries. Furthermore, FDI benefits depend on the absorptive capacity of industries, confirming the hypothesis that a minimum level of absorptive capacity is required so that locally owned enterprises (LOEs) can benefit from foreign presence.