During the recent period, we observe that many countries compete with
each other to attract foreign investment. When MNCs invest in a host
country, it is assumed that a part of their technology spills to the
host country firms. But the empirical studies on spillover effects of
FDI have failed to find robust empirical results about the possibility
of positive spillover effects. This study is an attempt to empirically
examine the spillover effects from the entry of foreign firms using firm
level data of Indian manufacturing industries for the period 1994-2002.
We consider both the horizontal and vertical spillover effects of FDI.
Consistent with the findings of the previous studies, we find no
evidence of significant horizontal spillover effects. In contrast, we
find negative vertical spillover effects, although it is not
Keywords: Foreign Direct Investment, Horizontal Spillover, Vertical Spillover, Panel Data
JEL Code: F2, O1, O3