FDI Productivity Spillovers in the Andean Region: Econometric Evidence from Colombian Firm-Level Panel Data

The analysis of the existence and the nature of spillover effects of foreign direct investment on the activity and efficiency of domestic firms experienced a major qualitative step forward thanks to the availability and recent incorporation of firm-level data. This permitted performing methodologically more robust types of analysis. The results of these analyses, however, were not always according to expectations. Several researchers did not find the expected positive spillover effects. In some studies, even negative spillovers were found. This was the case, for example, in the work done by Aitken and Harrison (1999), using data from Venezuelan firms for the 1976-1989 period. They found a negative relationship between the presence of FDI at the industry level and total factor productivity of local firms, although positive intra-firm effects were detected. This was a particularly important result given the historically high degree of scepticism vis-à-vis FDI in the region and the current debate on the optimal level of economic openness in the context of globalisation, in general, and the Free Trade Area of the Americas, in particular. In this contribution we present new results on productivity spillovers using Colombian manufacturing firm-level panel data for the 1995-2000 period. We tested (i) whether foreign ownership is associated with an increase in productivity at the plant level, and (ii) whether foreign ownership in an industrial sector affects the productivity of domestically owned firms in the same industry. The results show no or very weak (and not significant) spillover effects. If positive effects on the productivity of domestic firms are found at all, they are apparently completely absorbed by the most productive domestic firms.