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Microeconomic mechanisms behind export spillovers from FDI: evidence from Bulgaria

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Abstract

This paper studies how the presence of multinational enterprises affects the export performance of Bulgarian manufacturing firms—export spillovers from FDI. Using export data at the firm/product/destination level for the period 2004–2006, it finds positive forward spillover on export value and quantity, related to quality upgrading. Conversely, it finds negative (or insignificant) backward and horizontal spillover on export flows, related to quality downgrading. When aggregating data at the firm level and considering that a firm can operate in several sectors, the paper shows that the presence of foreign input suppliers allows domestic firms to export additional varieties of lower quality and upgrade the average quality of existing varieties, whereas the presence of foreign customers generates the opposite effect.

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Notes

  1. See Görg and Greenaway (2004) for more details.

  2. Using cross-section data at the firm level, Aitken et al. (1997) demonstrate that the probability of domestic firms exporting is positively influenced by the presence of exporting multinational enterprises in the same industry and region. Using firm level panel data from the UK, Greenaway et al. (2004) find that MNEs’ exports have a positive impact on domestic firms’ export decisions, but no effect on how much they export (i.e. firm level export-to-sales ratios). Ruane and Sutherland (2005) find that domestic firms’ export decisions and export intensities are negatively related to MNEs’ export intensity, using panel data from Ireland. Exploring similar data from Spain, Barrios et al. (2003) find no significant evidence of export spillovers from FDI, in terms of both probability of exporting and export intensity at the firm level.

  3. Previous studies on spillovers from FDI in Bulgaria focus on the effects on firm productivity, rather than export performance (Monastiriotis and Alegria 2011).

  4. Data obtained from World Bank’s World Integrated Trade Solution (WITS) Database.

  5. Exports of goods and service as percentage of GDP grew from 35% in 2001 to 47% in 2006. Imports as a percentage of GDP went from 44 to 64% in the same period.

  6. Bulgaria and Romania joined the EU in 2007. Czech Republic, Hungary, Estonia, Latvia, Lithuania, Poland, Slovakia, and Slovenia entered the Union in 2004.

  7. Bulgarian National Bank (2007), “Economic Review,” 1/2007.

  8. In the text, we use price and unit value as synonyms, i.e. both refer to the value/quantity ratio.

  9. Note that 2-digit IO codes correspond to 2-digit NACE codes, but some 2-digit NACE codes correspond to a single 2-digit IO code (such as 10-11-12; 13-14-15; 31-32), therefore the number of IO industries (19) is smaller than the number of 2-digit NACE industries (24).

  10. In line with previous studies (Javorcik 2004), we exclude intra-industry supplies when measuring vertical spillovers at the 2-digit sector level to prevent the problem of double-counting. However, it is worth noting that vertical spillovers may be underestimated. Alfaro and Charlton (2009) find that many vertical subsidiaries are only visible at the four-digit level because the intermediate goods they supply are so close to their parent companies’ final goods that they appear to be the same goods at the two-digit level. One way to overcome this problem is by using an I/O table at the 4-digit sector level. Unfortunately, a more disaggregated I/O table for Bulgaria is not available.

  11. Some studies compute spillovers at the sector/region level, giving more emphasis on agglomeration economies (Aitken and Harrison 1999; Girma and Wakelin 2002). Unfortunately, we cannot explore the geographic dimension as our export database does not include information about firm location.

  12. Note that the number of observations is slightly smaller as the quality measure is missing in some cases. The quality measure computed according to Khandelwal et al. (2013) relies on 3-digit level import elasticities for each importing country, estimated by Broda et al. (2006). Unfortunately, import demand elasticities are not available for some firm-product-destination triplets.

  13. When splitting our sample according to EU destination status, we note that vertical spillovers, in terms of both value and quantity, mainly impact exports to the EU, whereas horizontal spillovers exclusively affect non-EU exports. These patterns highlight the fact that Bulgarian firms were already highly vertically integrated with firms located in EU economies in the years preceding Bulgaria’s accession to the EU, and were mainly horizontally competing with firms from the rest of the world. The related results are available upon request.

  14. Monastiriotis and Alegria (2011) use horizontal spillovers in Romania as instruments for horizontal spillovers in Bulgaria; Xu and Sheng (2012) use horizontal and vertical spillovers in East and South-East Asia as instruments for the corresponding spillovers in China.

  15. Tables related to the first stages are available upon request.

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Acknowledgements

The authors are extremely grateful to the editor and two anonymous referees for their constructive comments. This paper also benefited from discussions with Simone Bertoli, Ana M. Fernandes, Beata S. Javorcik, Richard Kneller, Joel Stiebale, and participants at the conference on “Quality FDI, Growth and Development: Discussing the Impact and Policy Options” at UNIDO (Vienna), and CSAE 2017 conference at Oxford University. We thank them for helpful comments and suggestions. All remaining errors are the authors’ own. Michele Imbruno acknowledges the support received from the Agence Nationale de la Recherche of the French government through the program “Investissements d’avenir” (ANR-10-LABX-14-01).

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Authors and Affiliations

  1. Düsseldorf Institute for Competition Economics, University of Düsseldorf, Universitätsstr. 1, 40225, Düsseldorf, Germany

    Andrea Ciani

  2. CERDI, CNRS, Université Clermont Auvergne, 63000, Clermont-Ferrand, France

    Michele Imbruno

  3. GEP, University of Nottingham, Nottingham, United Kingdom

    Michele Imbruno

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  1. Andrea Ciani
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  2. Michele Imbruno
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Correspondence to Michele Imbruno.

Appendix

Appendix

See Tables 10, 11 and 12.

Table 10 Descriptive statistics at the firm/product/destination level
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Table 11 Descriptive statistics at the firm/product/destination level by Rauch (1999)’s product classification
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Table 12 Spillovers from FDI
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Ciani, A., Imbruno, M. Microeconomic mechanisms behind export spillovers from FDI: evidence from Bulgaria. Rev World Econ 153, 703–734 (2017). https://doi.org/10.1007/s10290-017-0290-4

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