Productivity Spillovers, Regional Spillovers and The Role Played by Multinational Enterprises in the New Eu Member States

This paper investigates the hypothesis that MNEs are important channels for technology diffusion and, consequently, important determinants of total factor productivity (TFP) growth rates. Our investigation uses data on foreign manufacturing firms operating in Bulgaria, Poland and Romania over the period 1998-2003. Distinctive features of our work are, on the one hand, the consideration of TFP at the aggregate level, and, on the other hand, the inclusion of spatial effects, and, therefore, the explicit consideration of both spatial dependence and spatial heterogeneity. This is the first time this methodology has been proposed and applied to the analysis of FDI induced spillovers. It allows us to reject previous methodologies that considered only one aspect, but not both, because results may be biased and inefficient. Our results, based on panel data estimations, indicate that spillovers from MNEs occur both within and across complementary manufacturing sectors at regional level. The latter, however, are less significant than the former in almost all specifications, indicating that, at the aggregate level, intra-sectoral spillovers are more robust than inter-sectoral spillovers