# 24.15 MNE Spillovers and Local Export Dynamics in China: The Role of Relatedness and Forward-Backward Linkages

Yibo Qiao, Nicola Cortinovis & Andrea Morrison 

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Abstract:

This article investigates how MNEs influence the export behavior of domestic firms in the context of China. We conceptually disentangle different MNE spillovers related to local export dynamics, linking in a unique framework specific spillover mechanisms, channels, activation conditions and type of knowledge conveyed. Empirically, our analysis relies on a panel dataset containing all Chinese manufacturing firms in the period 2000-2007. The results show that relatedness linkages matter in the context of export quantity, while forward-backward linkages matter for the sophistication of export. These findings suggest that relatedness linkages convey mainly marketing-related knowledge spillovers, while forward-backward linkages are diffusing mainly product-related knowledge spillovers.

# 21.11 Industrial Relatedness in MNE Spillovers over Geographical Space

Nicola Cortinovis, Zhiling Wang & Hengky Kurniawan

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Abstract:

In this paper, we explore how spillovers from multinational enterprises (MNEs) spread and impact domestic firms through different channels and at various spatial scales. Taking a firm-level approach, we test whether industrial relatedness mediates spillover effects from MNEs over and above horizontal and vertical linkages traditionally identified by the literature. Thanks to fine- grained geographical information, we further investigate the spatial reach of the spillovers and how they are associated with domestic firms’ characteristics such as absorptive capacity and technological sophistication. Our hypotheses are tested on a panel data set of Indonesian manufacturing firms census between 2002 to 2009. We find that domestic firms have higher total factor productivity when being exposed to a higher share of output from multinational firms in related industries, on top of the widely acknowledged horizontal and vertical MNE spillovers. We also show that MNE spillovers are sensitive to distance, with relatedness-mediated ones being detected between 30 and 60 km from the municipality of the MNE. Regarding heterogeneity, large firms benefit from productivity-enhancing relatedness spillovers at a wider spatial distance (up to 90km), and firms in less-advanced industries benefit from relatedness mediated effects as much as those in more advanced industries.

# 17.24 Multinational enterprises, service outsourcing and regional structural change

Andrea Ascani, Simona Iammarino

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This paper offers a joint analysis of two phenomena characterizing most advanced economies in recent decades: the rise of foreign ownership in manufacturing activities and the pervasiveness of the service economy. The aim of the study is to examine the structural transformation of regional economic systems within the UK by focusing on the role played by foreign multinational enterprises (MNEs) in manufacturing in facilitating the development of services. From a conceptual perspective, this research relies on different strands of literature on the impact of foreign direct investment (FDI) on recipient economies, on outsourcing and regional structural transformation, and on the identification of local multipliers. The empirical analysis focuses on a specific demand-side channel for structural change: the forward linkage established by foreign manufacturing MNEs with local service providers through outsourcing. Descriptive evidence shows that service outsourcing by foreign plants operating in manufacturing is pervasive compared to outsourcing by their domestic counterparts. On this basic premise, we estimate the multiplicative effects that foreign manufacturing activity has on the creation of service jobs in local labour markets. In order to produce reliable estimates of a local multiplier, the methodology adopts an instrumental variable approach. Our findings suggest that foreign presence in manufacturing can be a catalyst of regional structural change by stimulating the generation of new jobs in the tertiary sector via demand linkages.