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Foreign Direct Investment as a Catalyst for Domestic Firm Development: The Case of Sri Lanka

Konara, Palitha and Wei, Yingqi (2016) Foreign Direct Investment as a Catalyst for Domestic Firm Development: The Case of Sri Lanka. Transnational Corporations, 23 (3). pp. 1-32. ISSN 1014-9562

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Foreign direct investment (FDI) carried out by multinational enterprises (MNEs) is recognized as a mechanism through which domestic firms can learn and improve competitiveness. Different from the extant literature which tends to focus on the aggregate effects of FDI in Sri Lanka, we investigate the role of FDI for domestic firm development at the firm level. Using World Bank Enterprise Survey data supplemented by industry data, preliminary investigation reveals that, compared to domestic firms, MNEs are larger, more productive, more profitable, and more active in R&D. MNEs hire higher proportion of skilled workers and undertake more in-house training programs. They are also more export-oriented but rely more on inputs of foreign origin. The gaps between foreign and domestic firms indicate the potential that Sri Lankan firms can learn from MNEs/FDI. The econometric study on firm-level productivity indicates positive direct effects and negative spillover effects of FDI on domestic firms. The findings have important policy implications.

Item Type: Article
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Schools: Huddersfield Business School
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Depositing User: Palitha Konara
Date Deposited: 17 Aug 2016 10:01
Last Modified: 28 Aug 2021 16:49


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