Channels for foreign direct investment spillovers: a productivity study for Colombia

During the last few years, many countries, including Colombia, have welcomed greater flows of foreign direct investment (FDI) hoping they will generate indirect productivity gains in the local companies of the host countries (productivity spillovers). These benefits have not yet been confirmed by econometric evidence. This research looks at the relationship between FDI presence and productivity among manufacturing companies in Colombia for the period 1995-2000. It finds positive spillovers from foreign direct investment (FDI) through linkages between foreign affiliates and local suppliers, but no spillovers through forward linkages with local clients. The analysis also suggests that positive intraindustrial spillovers are related with competition effects that FDI generates; and they seem to diminish in relationship with sector openness to trade.