Foreign direct investment and firm level productivity - A panel data analysis
This paper uses panel data to examine the effect of foreign presence on
firm level productivity in the Kenyan manufacturing industry employing
"traditional" and "recent" methodologies both based on production
function framework. A detailed comparative behaviour between foreign and
local indigenous firms showed that foreign firms dominated in virtually
all the economic activities including productivity performance. Analysis
of productivity determinants following traditional approach indicated a
statistically significant role played by foreign presence on firm level
total factor productivity thus, supporting spillover occurrence
argument. However, results based on recent methodologies showed no
effect of foreign presence on firm level total factor productivity hence
failing to support spillover occurrence dictum. These results indicate
that use of different methodologies even within the same theoretical
framework can result in divergent findings. This notwithstanding, the
paper further argues that use of productivity based methodologies
largely masks the nature, actual processes and mechanisms through which
spillovers occur. The paper therefore advocates for a "paradigm shift"
in the spillover analysis techniques and recommends a broader approach
with particular emphasis on technological innovations which takes into
consideration learning, capability building and innovation.
Keywords: Foreign presence, spillovers, total factor productivity,
technological innovation and Kenya.
JEL Classification: C3, F2, L1, L6, O1, O3.