11 of support to local suppliers, as evidenced by survey findings for China by Liao and Wei (2013) and Poland by Gentile-Ludecke and Giroud (2012).

The _nationality or country/economy of origin_ of MNC affiliates. This factor can affect the use of local suppliers and productivity spillovers in various ways. Wei et al. (2012) report that affiliates from Hong Kong SAR, China; Macao SAR, China; Taiwan, China; and Singapore source more local inputs in China compared to MNC affiliates from other countries, suggesting that cultural proximity facilitates the use of local suppliers. Ni et al. (2017) estimate productivity spillovers among Vietnamese firms and find that only MNC affiliates of Asian origin generate significant effects.

However, it may also be the case that MNC affiliates from home economies located far away from their host economies use more local suppliers, as high transportation costs can prevent the use of suppliers located in the home economies (Rodriguez-Clare 1996). This is in line with findings by Amendolagine et al. (2019) for Sub-Saharan Africa that show that the distance between the MNC affiliates’ home and host economies has a positive effect on local sourcing. It also provides an explanation for findings presented by Javorcik and Spatareanu (2011) for Romania that only MNC affiliates from the United States create significant productivity spillovers. Related to this, Javorcik, Lo Turco, and Maggioni (2018) find in their study on Turkey that only MNC affiliates originating from highincome home economies generate positive productivity spillovers. This finding suggests that affiliates from high-income countries have larger technological capabilities that increase the scope for positive externalities.<sup>8</sup>

# **3.2. Characteristics of Domestic Firms**

_Unavailability of inputs_ . A key factor that many studies find limits the use of local suppliers by MNC affiliates is the _unavailability of particular inputs_ . As for inputs that can (potentially) be sourced from local suppliers, MNC affiliates often report that various characteristics of these suppliers limit their degree of local sourcing (UNCTAD 2011; World Bank 2018). For example, MNC affiliates operating in Vietnam (Franco, Sanfilippo, and Seric2015) and MNC affiliates operating in the automotive industry in the Czech Republic (Pavlinek and Zizalova 2016) indicate that the _low quality of local inputs,_

> 8 Several other firm characteristics that are not related to affiliates being foreign-owned are found to be important. Firm size tends to exercise a negative effect on the use of local suppliers, as the scale of input demand from large firms often exceeds the capacity of local suppliers (UNCTAD 2001). Lenaerts and Merlevede (2015) use this argument to explain their findings for Romania that large MNC affiliates do not create productivity spillovers. However, large firms are more likely to provide support to their suppliers, as they possess more resources to do so. Age or experience has a positive effect on the level of local sourcing and the provision of support, as it takes time for firms to identify and establish business linkages with suitable domestic firms (Kiyota et al. 2008). The nature of production processes is also important, as there can be substantial differences between sectors in levels of local sourcing and supportive linkages (Sanchez-Martin, De Pinies, and Antoine(2015); Jordaan 2011a).