For more information visit Skatteforsk - Centre for Tax Research.
Authors
Ronald B. Davies (University College Dublin & Skatteforsk - Centre for Tax Research), Mahdi Ghodsi (The Vienna Institute for International Economic Studies), Francesca Guadagno (The Vienna Institute for International Economic Studies)
Abstract
The hope that multinational firms will improve local employment and productivity is a driving force behind policy efforts to attract investment. Such spillovers are often motivated by technological spillovers from foreign to domestic firms. We address this possibility by using the patenting activity of foreign multinationals in Europe as a measure of affiliate activity alongside more traditional proxies. We find that local firms’ employment and labour productivity is higher when FDI activity increases, particularly when those multinationals are upstream of locals. Furthermore, this effect is particularly significant among domestic patenting firms. Thus, it seems that the benefits of inbound investment are greatest for local innovators who are exposed to inbound innovating foreigners.