Feature Articles
Productivity Spillovers to Local Manufacturing Firms from Foreign Direct Investment
17 May 2012
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This article examines if foreign participation in Singapore’s manufacturing sector has led to productivity spillovers to local-owned firms. Three specific channels of productivity spillovers are considered – horizontal, backward and forward linkages.
We find that foreign-owned firms tend to be more productive than local-owned firms in the various manufacturing clusters. We also find evidence that foreign direct investment (FDI) has led to productivity improvements in local-owned firms in clusters that have stronger vertical linkages with foreign-owned firms. This is particularly the case for local-owned firms supplying to foreign-owned firms in other clusters.
However, the presence of foreign-owned firms has no clear productivity impact on local-owned firms in the same cluster
The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry, the Economic Development Board or the Government of Singapore.