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Unformatted text preview: Katja Zajc Kejžar, Andrej Kumar • Inward foreign direct investment and industrial... Zb. rad. Ekon. fak. Rij. • 2006 • vol. 24 • sv. 2 • 185-210 185 Preliminary communication UDC 339.727.22 :005.591.4:334.716(497.4) Inward foreign direct investment and industrial restructuring: micro evidence – the Slovenian Frms’ growth model * Katja Zajc Kejžar 1 , Andrej Kumar 2 Abstract We examine the impact of inward foreign direct investment (FDI) on the growth of local ¡rms in terms of employment and total factor productivity (TFP) for the Slo- venian manufacturing sector in the 1994-2003 period. The theoretically predicted channels through which inward FDI affects the ¡rm dynamics in a host country prove to be in general signi¡cant. First, there is evidence of the direct impact of foreign ¡rms through so-called direct technology transfer as foreign-owned ¡rms have higher growth of TFP compared to domestically-owned ¡rms after control- ling for other determinants. Secondly, the entry of foreign ¡rms stimulates the re- shuf¢ing of the resources from less to more ef¡cient local ¡rms. The ¡rm selection process is, namely, characterised by the least ef¡cient ¡rms experiencing a drop in their employment growth upon a foreign ¡rm’s entry. Thirdly, regarding the pro- ductivity spillover effects from foreign to local ¡rms we provide indirect evidence that they mostly operate through vertical linkages rather than within the same in- dustry. In general, it seems that not all ¡rms are equally able to bene¡t from for- eign ¡rms’ presence and that absorptive capacity plays an important role. Key words : foreign direct investment, ¡rm growth, productivity spillovers, ¡rm se- lection process, industrial restructuring JEL classifcation : F21, F23, L11, L25, C23 * Received: 29-05-2006; Accepted: 06-11-2006 1 Assistant, PhD, University of Ljubljana, Faculty of Economics, Kardeljeva plošćad 17, 1000 Ljubljana, Slovenia. Scienti¡c af¡liation: International economics. Phone: + 386 1 89 24 00, + 386 1 89 24 00, Fax: + 386 1 89 26 98, E-mail: firstname.lastname@example.org i , Personal website: http://www.ef.uni- lj.si/en/lecturers/lecturer.asp?id=26 5 2 Full professor, PhD, University of Ljubljana, Faculty of Economics, Kardeljeva plošćad 17, 1000 Ljubljana, Slovenia. Scienti¡c af¡liation: International economics. Phone: + 386 1 89 + 386 1 89 24 00, Fax: + 386 1 89 26 98, E- mail: email@example.com , Personal website: http:// www.ef.uni-lj.si/en/lecturers/lecturer.asp?id=2 3 Katja Zajc Kejžar, Andrej Kumar • Inward foreign direct investment and industrial.. 186 Zb. rad. Ekon. fak. Rij. • 2006 • vol. 24 • sv. 2 • 185-210 1. Introduction Several recent empirical studies provide evidence that within-industry reallocations from less to more productive Frms and the exit/entry process contribute signiFcantly to average productivity growth and constitute an important mode of industrial re- structuring (see Olley and Pakes (1996), Roberts and Tybout (1996), Pavcnik (2002),...
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