Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences
Abstract
In 1993 Audi opened a new plant in Hungary.
This paper examines the long
-
term effects of
this large foreign direct investment on local firms operating in supplier industries. I use firm
-
level panel data with long time series. Using the method of triple difference
-
in
-
differences I
compare outcomes o
f firms in supplier and control industries, close and far from the Audi
plant, before and after the entry. My main findings are: (1) after the Audi entry the average
annual growth rate of local firms increased by 3 percentage points for sales and 2 percent
age
points for employment. The effect is visible only five years after the entry of Audi. I find no
positive effect on productivity. (2) Firms with foreign owners account for all the positive
effect on sales and employment, suggesting a foreign
-
to
-
foreign
complementarity in
investments. Firms with higher productivity gained more. Consequently, the low initial
productivity of domestic firms may explain the lack of an effect in this group. (3) New
entrants in the supplier industry locating close to Audi are l
arger and grow faster, suggesting
that Audi also had an effect on the extensive margin