Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis*


  • *

    I am grateful to Holger Görg, David Greenaway and Martin Hoskins for helpful comments on an initial draft of the paper, which has subsequently undergone substantial changes thanks to some very thoughtful suggestions of an anonymous referee, and specially the Editor.


This paper explores whether the effect of foreign direct investment (FDI) on productivity growth is dependent on absorptive capacity using recently developed threshold regression techniques. In manufacturing sectors where technology-exploiting multinationals are prevalent, the results point to the presence of nonlinear threshold effects: the productivity benefit from FDI increases with absorptive capacity until some threshold level beyond which it becomes less pronounced. But there is also a minimum absorptive capacity threshold level below which productivity spillovers from FDI are negligible or even negative. On the contrary, no evidence of productivity spillovers is found in sectors where FDI appears to be motivated by technology-sourcing considerations.