The role of human capital in productivity spillovers from FDI : an empirical analysis on Turkish manufacturing firms

Abstract

This thesis studies whether the existence or magnitude of possible productivity spillover effects from FDI differs across domestic firms that possess different levels of human capital. The human capital as an absorptive capacity has been investigated in the macro literature by Borensztein et al. (1998) and Xu (2000). The aim of this analysis is to investigate their question at firm level. To test for this, a firm-level unbalanced panel data from Turkish manufacturing industry over the period 1990-2001 is used. First, firm-level total factor productivity (TFP) is calculated using the Levinsohn-Petrin methodology. Then, the evidence regarding the productivity spillovers from FDI is provided. The analysis is conducted using both level and growth of TFP as dependent variable. The results of this spillover analysis suggest that there are negative spillovers through forward linkages on the TFP level but not on the growth rate of TFP. On the other hand, only evidence of positive backward spillovers and negative horizontal spillovers are found for the growth of TFP. Finally, a deeper investigation of whether domestic firms with higher human capital benefit more from these spillovers is undertaken. In level regressions,results show that domestic firms benefit from FDI through backward linkages if they possess human capital under a certain level. In growth regressions, the domestic firms benefit from FDI through horizontal channel if they possess above a minimum threshold level of human capital.