DP4857 | Does Distance Matter in Spillover?

Publication Date

23/01/2005

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Abstract

This Paper examines the technology transfer through FDI in Hungary, using a large panel dataset of 24,000 firm-level observations. We distinguish horizontal (intra-industry) and vertical (inter-industry) spillovers. Besides the sign and magnitude of these effects we are interested in the spatial structure of these technology transfers. For this we use distance data, correct for sample selection and for the endogeneity of input demand use Arellano-Bond dynamic panel data technique. Our main findings are that there are significant horizontal and backward spillovers for domestic-owned firms suggesting the presence of foreign competitors and customers is beneficial for domestic firms. The effect of regional and county boundaries is insignificant. Using the distance data we find clear spatial structure of spillovers: for domestic firms the foreign presence only matters in very small distance (25 km), for foreign-owned firms the stronger the spillover the larger the distance (50 and 100 km).