Relevance of Today’s Paper to Tanzania • TZ has more FDI than Ethiopia (24% in Census of Industrial Production 2013 vs 18% in Ethiopia) • Moreover, 68% of foreign firm entered TZ’s mfg sector since 1998 • So, the potential for learning from foreign firms in TZ is real • We worked with NBS to develop a technology transfer module that has been implemented by NBS as part of the most recent ASIP • Data is currently being cleaned by NBS • We will be analyzing the data over the next several months
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra The research questions � To what extent is the productivity of domestic plants affected by foreign direct investment (FDI)? Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra The research questions � To what extent is the productivity of domestic plants affected by foreign direct investment (FDI)? � Can domestic plants assimilate knowledge from (superior) foreign plants through observation, imitation and interaction? Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra The research questions � To what extent is the productivity of domestic plants affected by foreign direct investment (FDI)? � Can domestic plants assimilate knowledge from (superior) foreign plants through observation, imitation and interaction? � (new look at quite old questions) Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Motivation � Productivity gaps large between developed and developing countries; FDI could be powerful tool for reducing them � Attracing FDI key element of Ethiopian governments industrial policy (also other countries) � Previous literature effects not well identified (Handbook DevEC, Harrison and Rodriguez-Clare 2010) � Key question is whether knowledge assimilated through observation, imitation and (formal and informal) interaction � Similarity between research on FDI spillovers and that on agglomeration advantages (e.g. Greenstone, Hornbeck & Moretti 2010) � Our research design exploits geograpic location of FDI Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra This Paper � Uses insights from literature on agglomeration to identify causal impact of FDI on domestic plant prody � Quantify magnitude of spillovers from FDI using plant-level panel data from Annual Census of Manufacturers � Production functions allow total factor productivity (TFP) of domestic plants to depend on presence of large greenfield foreign plant in the district � Two research designs addressing issue that district chosen by FDI likely different from average � RD1: planned vs actual FDI and RD2: exploits government assignment of land � Mechanisms: Technology Transfer survey designed by us Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Preview of Results � over 3 yrs starting with yr of opening, 0.3-standard-deviation increase in TFP in ’treated’ domestic plants � knowledge transfer through (i) labor flows (ii) learning by observation (iii) customer/supplier relationships (consistent with Serafinelli 2017; Fons-Rosen 2012; Javorcik 2004) � foreign plants attract new economic activity � Some evidence of increased within firm employment, no changes in wages � similar results with RD 1 & 2 (despite different potential omitted variables biases) Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Outline � A Simple Model � Data and Descriptive Stats � Estimation and Main Evidence � Robustness, and Further Evidence Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra � Consider a domestic plant j ’s optimization problem: max L f ( A , L ) − wL � nationally traded good whose price normalized to 1; L : labor; w : wage [see paper for more general framework] A = A ( p ) � p : geographical, temporal and economic proximity to FDI (Rosenthal and Strange 2004, Greenstone Hornbeck and Moretti 2010) � FDI spillovers: ∂ A / ∂ p > 0 Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra � Let L ∗ denotes the optimal level of labor given wage π ∗ = f [ A ( p ) , L ∗ ( w ( p ))] − w ( p ) L ∗ ( w ( p )) � totally differentiate d π ∗ ∂ p [ ∂ L ∗ = ∂ f ∂ A ∂ p + ∂ w ∂ w ( ∂ f ∂ L − w ) − L ∗ ] ∂ A dp � If all domestic plants wage takers and labor paid MP d π ∗ dp = ∂ f ∂ A ∂ p − ∂ w ∂ p L ∗ ∂ A Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Outline � A Simple Model � Data and Descriptive Stats � Estimation and Main Evidence � Robustness, and Further Evidence Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Data � Central Statistical Agency (CSA) Large and Medium Scale Manufacturing Establishment Census; link up plants for 1997-2013 to estimate TFP regressions [Descriptives Sample, Descriptives ETH Economy] � In principle , any formal manufacturing plant with L ≥ 10 that uses electricity forms part of target population ( ⇒ ) � Feb 2014 technology transfer survey module implented by CSA with LMSM Census � June 2016 we visited several plants [Pictures] � In-depth interviews with EIC, Ministry of Industry, managers at foreign & domestic plants � Restricted administrative data from Ethiopian Investment Commission (EIC) Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
Intro Simple Model Data Estimation and Main Evidence Inside the Black Box of TT Further Evidence Conclusions Extra Table: Size, performance and technology indicators by ownership type (2013) (1) (2) (3) (4) Full Sample FDI Domestic p -value of diff. (2)-(3) Number of workers 86.7 150.1 72.7 0.00 Value added per worker 143 188 133 0.06 Percent of output sold to FDI (%) 2.9 5.1 2.4 0.00 Percent of plants that export 5.6 14.2 3.7 0.00 Percent share of export in total sales 2.5 6.6 1.8 0.00 Conducted R & D in the last three years 7.1 11.0 6.3 0.00 Hold internationally recognized patent 1.9 4.2 1.4 0.00 Use technology licensed from abroad 10.8 13.6 10.2 0.08 Number of observations 1,708 310 1,398 Note: Author’s compilation based on CSA census and FDI survey module Girum Abebe (EDRI, Ethiopia), Margaret McMillan (Tufts), Michel Serafinelli (Toronto) Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia
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