Foreign direct investment and reverse technology spillovers: the effect on total factor productivity

Abstract

The paper analyses the “feedback effect” of Foreign Direct Investment (FDI) on Total Factor Productivity (TFP) growth in emerging economies via technology spillovers across borders. We study the effect of R–D spillovers resulting from outward FDI flows from 18 emerging economies into 34 OECD countries over the 1990-2010 period, comparing the impact with that of spillovers resulting from inward FDI flows. The result confirms that FDI enhances productivity growth; however the impact is much larger when R-D-intensive developed countries invest in the emerging economies than the other way round. Country-specific bilateral elasticities also support this outcome. JEL classification: F210, F430, F620, O470. Keywords: Outward FDI, Inward FDI, Reverse technology spillovers, Total factor productivity.