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FDI spillovers on firm survival in Italy: absorptive capacity matters!

Author

Listed:
  • Anna Ferragina
  • Fernanda Mazzotta
Abstract
The aim of this paper is to explore the effects of spillovers driven by competition and forward and backward linkages between foreign firms and Italian firms. We adopt the firm dynamics framework, which allows us to test the impact of foreign firms’ activity on the probability that local firms will exit. The empirical analysis relies on continuous survival models (Cox proportional hazard models) and uses a representative firm level database from the period of 2002–2010 with data concerning more than 4,000 Italian manufacturing firms. Our estimates regarding the whole sample show that horizontal and vertical linkages have no impact on firm survival. To further test this finding, we perform a more disaggregated analysis that allows for heterogeneity across firms and sectors. We obtain evidence that the effects of FDI spillovers on firm survival follow specific patterns at both the intra- and inter-industry levels based on differences in productivity between Italian firms and foreign firms and on the technological intensity of the industry. Foreign firms’ activity reduces the exit probability of competitors and of downstream local customers (through forward linkages) with low productivity gap but has no impact on high productivity gap firms. Firms in high technology intensive sectors do not benefit from horizontal FDI while in low and medium technology sectors they do. Differences in absorptive capacity may explain these results. However, we also find that vertical linkages with foreign firms in the upstream supplying industries spur firm duration in medium and high tech sectors. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Anna Ferragina & Fernanda Mazzotta, 2014. "FDI spillovers on firm survival in Italy: absorptive capacity matters!," The Journal of Technology Transfer, Springer, vol. 39(6), pages 859-897, December.
    • Handle: RePEc:kap:jtecht:v:39:y:2014:i:6:p:859-897
    DOI: 10.1007/s10961-013-9321-z
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    More about this item

    Keywords

    International investment; Multinational firms; Duration analysis; Firm performance; Business dynamics; International linkages to development; Productivity spillovers; Backward and forward linkages; Absorptive capacity; Italian production system; F21; F23; C41; L25; O19; O33;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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