Industrial Linkages and Export Spillovers from FDI

In this paper we investigated the hypothesis of export spillovers from foreign multinationals to domestic firms using a data set of UK manufacturing firms from 1992 to 1999. Unlike previous studies we allow not only for the possibility of horizontal (i.e. intraindustry) and regional externalities, but also for vertical ones (i.e. inter-industry: forward and backward). Deploying and Heckman selection process we modelled the two decisions of whether to export or not, and how much to export, separately. The results indicate that the decision to start exporting is positively associated with the presence of foreign firms in the same industry and region; furthermore export oriented foreign affiliates seem to be the source of stronger export spillovers. The decision concerning how much to export is affected positively by foreign firms in downstream industries and by those in the same industry and region that do not export.