1. FOREIGN DIRECT INVESTMENT AND PRODUCTIVITY
SPILLOVERS:
Firm Level Evidence from Chilean industrial sector .
Leopoldo Laborda Daniel Sotelsek
University of Alcalá (Spain) University of Alcalá (Spain)
llabordacastillo@gmail.com daniel.sotelsek@uah.es

2. Introduction
This paper tries to cover:
1. The added efficiency (productivity of the factors)
2. Spillovers from foreign direct investment (FDI) make contribution to productivity growth.
Hypothesis:
a) Higher competition is associated with larger spillovers from foreign presence in the industry,
that is, positive productivity through competition.
b) Firms with R&D expenditure gain more productivity spillovers from FDI than those without
R&D expenditure
c) There is a positivity productivity spillover from FDI
d) There are positive FDI spillovers to each component of productivity growth (TEC, TP, and
SEC).
In this situation one important questions is:
does FDI lead to productivity spillovers?

3. Methodology
Stochastic frontier approach to estimate FDI productivity spillovers in Chilean
manufacturing firms.
Apply the method of Data Envelopment Analysis (DEA) and compute the Malmquist
index to decompose total factor productivity (TFP) growth into technical efficiency
change (TEC), technological progress (TP), and scale efficiency change (SEC).
a) Deterministic frontier production functions: the stochastic frontier-inefficiency model.
b) Decomposing productivity growth: a generalized Malmquist index
G0,it +1 = TEC ti ,t +1 + TPit ,t +1 + SEC ti ,t +1
t
[7]
The statistical source used for this analysis is the World Bank’s Enterprise Surveys (ES).

4. Empirical Results
Chile has been considered as a clasicc emergemt country for 2 reasons_
a) Rate of economic growth during 15 years was very high (5%)
b) The added value generated by the chilean industry (important differences betwen sectors)
When observing the whole of the Chilean industry, one can observe very similar
behaviors, during the studied periods, in the levels of technical efficiency achieved. In
this context, the betterment potential (ease) in the use of their productive inputs is
close to 53 %.

5. Empirical Results
Competition, absorptive capacity and productivity spillovers.
In this section hypotheses a) and b) are tested
A test of first hypothesis (see table 8) includes a spillover variable, competition
variable (HHI) and an interacting variable of spillover and HHI.
A test of second hypothesis (see table 9) includes a spillover variable, R&D effort
and an interacting variable of R&D effort and spillover in order to evaluate the
absorptive capacity of spillovers in the industry.
The negative and significant coefficient on
The positive and highly significant coefficients the spillover variable (spillover) in Models
confirm the expected positive and significant 1, 2, 3 and 4 in Table 9 implies a positive and
significant efficiency spillover in the Chilean
output effects of labor and capital
industrial sectors
The coefficient of the research and development dummy The negative coefficient of the
(R&D) is positive and significant at the 1% interacting variable between R&D
level, suggesting that firms with high R&D effort, on
and spilloverssuggests that firms
average, have lower efficiencies compared to those with
low R&D effort. with high R&D effort gain more
spillovers from foreign firms

6. Empirical Results
Sources of productivity growth and FDI spillovers
Table 10 shows that the major contribution to productivity growth in
the Chilean industrial sectors is from technological progress and for
technological efficiency change (with the exception of Biotechnology
sector). In contrast, the SEC indices are relatively low, suggesting that
this component do not contribute much to productivity growth.
A positive and significant estimate is found for R&D effort, which indicates that
firms with high R&D effort have higher SEC than those with R&D effort.

7. Conclusions
The intra-industry productivity spillovers are
examined through the spillover variable, and
the roles of competition and R&D in
extending spillovers from FDI are evaluated to
test a channel of productivity spillovers.
Authors like Suyanto et al (2009) suggests that policies for strengthening the absorptive capacity of
domestic firms through investing in knowledge and human capital formation may be superior to
policies that provide concessions for FDI.
In this context more general policies should be pursued, which not only attract FDI but also benefit
domestic firms, for example, build modern infrastructure, increasing and strengthening the
institutions for accelerating and sustaining economic growth.