conditional on workers’ education level. Earle, Telegdy and Antal (2013) use linked employer-employee data in Hungary and find the wage premium of foreign acquisition to be around 4.5 percent. The wage premium is observed for all education, experience, gender, and occupation groups as well as across wage quantiles. Divestment to domestic owners, on the other hand, is shown to reverse the effects. On employment, Lipsey et al (2013) find that the shift from domestic to foreign ownership tends to raise employment growth in Indonesia. As for productivity, Arnold and Javorcik (2009) use Indonesian plant level data and find that plant productivity increases about 13.5 percent by the third year under foreign ownership. These productivity improvements occur simultaneously with increases in investment in machinery and equipment, employment, wages and output. Similarly, taking into account endogenous acquisition decisions in China, Wang and Wang (2015) find positive impacts of foreign acquisition on firm productivity, export, output, employment and wages.

- **Spillover to other domestic firms.** In addition to the direct benefits from foreign acquisition on targeted firms, many studies examine the spillover effect of FDI on other domestic firms in the host country. The literature distinguishes three types of spillover: intraindustry or horizontal spillover, inter-industry spillover through backward linkage, and interindustry spillover through forward linkage. The literature provides little evidence in support of intra-industry productivity spillovers from FDI.  Javorcik (2004) and many subsequent studies show that FDI exerts little or negative effects on the productivity of domestic firms in the same industry. Lu et al. (2017), for example, explore the relaxation of FDI regulations upon China's WTO accession to evaluate the spillover effect of horizontal FDI and find FDI to exert either a negative or an insignificant effect on the productivity of Chinese domestic firms.

One of the potential explanations for the limited horizontal spillover is that domestic producers also face crowding out effects in product and factor markets when foreign competitors enter the market. Such crowding out effects tend to be nonexistent or relatively small for firms that are vertically linked to foreign firms (i.e. suppliers or customers of the foreign firms). Other explanations suggested in the literature include, in particular, mediating factors that are discussed below.

While the evidence is ambiguous about the existence of positive and significant horizontal spillover, most studies find positive and significant productivity spillover through backward linkages. A leading study in this literature, Javorcik (2004), finds that a one-standarddeviation increase of foreign presence in the sourcing sectors is associated with 15 percent rise in domestic firms’ output in supplying industries in Lithuania. Blalock and Gertler (2008) use firm level panel data from 1988-1996 and similarly find evidence of positive spillover through backward linkage in Indonesia. In Hungary, Halpern and Murakzy (2007) find evidence of positive horizontal spillover but only for firms that are geographically close to foreign-owned firms. Javorcik and Spatareanu (2009) find evidence of backward linkage spillover in the Czech Republic. Kee (2015) explores a new channel of productivity spillover and finds firms sharing the same suppliers with foreign firms in Bangladesh to experience productivity improvement.

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