Productivity Spillovers from Foreign Multinational Enterprises to Domestic Manufacturing Firms: To What Extent Does Spatial Proximity Matter?

Productivity spillovers from foreign multinational enterprises to domestic manufacturing firms: to what extent does spatial proximity matter?, Regional Studies. This paper analyses the role of spatial proximity in productivity spillovers from foreign multinational enterprises (MNEs). Using a database of foreign affiliates located in Italy from 1999 to 2005, it is shown that local firms benefit from the presence of MNEs through both backward and forward linkages. It is found that: (1) spillover effects are more strongly associated with MNEs in knowledge-intensive business services and utilities; and (2) co-location positively affects productivity spillovers, and the effect is stronger for foreign affiliates that are distantly located. This is especially true in the service sector due to the role of temporary spatial proximity and other dimensions of proximity