Foreign Direct Investment and Technology Spillovers in the Turkish Manufacturing Industry

Technology spillovers from foreign to local firms in emerging economies are considered to be the most important channel through which Foreign Direct Investment (FDI) influences the host economy. Empirical evidence about the existence, magnitude, and direction of FDI-related spillovers in these countries is contradictory, pointing to the necessity of conducting more econometric studies using firm-level data. The authors conduct an econometric analysis to assess the impact of FDI-related horizontal technology spillovers on output growth of local firms in the Turkish manufacturing industry over 2003-2006. When a broad definition of foreign ownership is adopted, their findings suggest that horizontal spillovers occur from foreign to local firms in the sector of activity. Export-oriented firms do not benefit from these spillovers in contrast to firms producing mainly for the local market. However, when foreign ownership is defined according to whether the minority or majority of capital is detained by the foreign partner, horizontal spillovers seem to originate from foreign firms with majority or full foreign ownership, while no such effect is associated with minority-owned foreign firms