Foreign Direct Investment and Productivity Spillovers in Swedish Manufacturing, Trade Union Institute for Economic Research (FIEF) Working paper No

Based on a panel of data for Swedish manufacturing firms in 1990-2000, this paper finds strong evidence for the existence of positive spillover effects from inward FDI. The presence of foreign ownership in the same industry and region seems to enhance the total factor productivity of domestic firms. Moreover, the size of these FDI spillover effects seems to depend both on the nationality of the foreign MNF as well as on the absorptive capacity of the domestic firm, measured by its own R&D. It appears that this positive relationship between foreign presence and productivity cannot be explained as a consequence of reverse causality, i.e that FDI is attracted to highly productive regions and industries. These results gives support to the idea that international competition and flows of FDI are important for economic growth in general. Applicable too the ongoing EU enlargement process one may expect an increase in the flows of FDI. This may induce increasing flows of knowledge spillovers among EU members, effecting the overall EU economic growth