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Right arrow D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
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© 2000 International Bank for Reconstruction and Development / The World Bank

research-article

Foreign Investment and Productivity Growth in Czech Enterprises

Simeon Djankov and Bernard Hoekman

the Financial Sector Practice Department at the World Bank sdjankov{at}worldbank.org
the World Bank Institute and the Centre for Economic Policy Research bhoekman{at}worldbank.org

This article uses firm-level data for the Czech Republic to show that during 1992–96 foreign investment had the predicted positive impact on total factor productivity growth of recipient firms. This result is robust to corrections for the sample bias that arises because foreign companies tend to invest in firms whose initial productivity is above average. Together, joint ventures and foreign direct investment appear to have a negative spillover effect on firms that do not have foreign partnerships. However, with foreign direct investment alone, the magnitude of the spillover becomes much smaller and loses significance. This result, in conjunction with the fact that joint ventures and foreign direct investment account for a significant share of total output in many industries, suggests that further research is required to determine the extent of knowledge diffusion from firms that have foreign links to those that do not.


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