Catching-Up to Foreign Technology? Evidence on the "Veblen-Gerschenkron" Effect of Foreign Investments

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The presence of foreign multinational enterprises may benefit local economies. In particular, highly productive foreign-owned firms may promote technological catch-up of local firms. Such channel of spillovers is defined as "Veblen-Geschenkron" effect of Foreign Direct Investments and is analyzed in this article. Rather than the overall density of foreign-owned plants in a region or sector, it is their productivity advantage that determines the positive effect on domestic firms in geographical and technological proximity. We test this hypothesis using new firm-level data for German and Italian manufacturing firms during the 90's. We find evidence of a significant Veblen-Gerschenkron effect which is robust to different ways of measuring total factor productivity (TFP) of firms and to different empirical specifications.

Published: Peri, Giovanni and Dieter Urban. "Catching-Up To Foreign Technology? Evidence On The 'Veblen-Gerschenkron' Effect Of Foreign Investments," Regional Science and Urban Economics, 2006, v36(1,Jan), 72-98.

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