PRODUCTIVITY SPILLOVERS FROM INWARD FOREIGN DIRECT INVESTMENT IN THE U.S. FOOD PROCESSING INDUSTRY

Abstract

Productivity spillovers in the U.S. food processing industry resulting from inward foreign direct investment (FDI) were examined for the time period of 1988 to 1992. Both Caves-type (unidirectional) and simultaneous (bidirectional) spillover models were considered in the analysis. Using the Caves-type spillovers model, foreign investment was found to have significantly negative spillovers. The technology gap between U.S. firms and foreign firms in the food processing industry was small, and it was positively related to the productivity growth. The simultaneous equation model revealed that spillovers were bi-directional in the U.S. food processing industry. The demonstration effect from foreign presence was negative, but the competition effect had even larger positive spillovers for U.S. domestically-owned firms. As a whole, the U.S. food processing industry has benefited from the competition brought by inward FDI.International Relations/Trade,