Firm Heterogeneity and Development: A Meta Analysis of FDI Productivity Spill-overs

abstract: In order to assess the relationship between economic development and firm heterogeneity, this paper studies productivity levels in the context of FDI. We illustrate that developing and emerging countries show a lot of variation in the extent of heterogeneity of their populations of firms. Heterogeneity is a bit stronger at per capita GDP levels below $10.000, but also remains substantial at higher levels of development We take stock of the rich literature on FDI-spill-overs analysing econometric studies on FDI spill-over effects that were published over the period 1983-2008 and deal with national studies in 30 developing countries and emerging markets. One important finding is that these studies tend to ignore two sources of heterogeneity: exports and – especially – R&D. We use a meta-analysis to correct for differences in research design (including regional effects, sample size and level of aggregation) and investigate the spill-over effects of foreign firms on domestic firms. Focusing on the effect of firm heterogeneity on productivity, we investigate several sources of heterogeneity including firm size (production share), internationalization (both exports and foreign ownership) and labour quality. We observe positive, and significant effects for heterogeneity in terms of labour quality, size and export as 44% –66% of the coefficients are significant and positive and less than 9% of the coefficients are negative and significant. This robustness contrasts with contradictory findings for foreign ownership where 63% of the coefficients are insignificant or negative. At another level this study identifies research design factors that influence the reported findings on FDI spill-over analysis.