macro variables, the short coming of using FSPit is, also that, it is a ...rm level variable that is subjected to selection bias, endogeneity, reverse causality and measurement errors.

One may worry that, as a domestic ...rm performs better over time, it may choose to buy from local suppliers that also work with FDI ...rms. Such self-selection will cause an upward bias in the least squares estimate of �FSP : However, given that I only use local supplier information in 2003 to construct FSPit; within ...rm variation of FSPit is driven by changes in the market presence of FDI siblings, rather than through adding or dropping of local suppliers. Thus, while potentially large or more productive domestic ...rms may self-select to buy from local suppliers that also serve FDI ...rms, given the nature of within ...rm estimation and the ...xed set of local suppliers for each ...rm, selection bias may not be too relevant.<sup>18</sup> In other words, within estimations limit the comparison of ...rm performance to be within ...rm over time, so the issue of cross ...rm comparison of performance driven by ...rm size while could be important is not relevant in this context.

There is also a concern that if a local supplier becomes exogenously better (which could be because it is a FDI ...rm), it improves the performance of all its clients, and some FDI client ...rms may expand their market presence, as a result. Such simultaneity problems will also cause an upward bias in the least squares estimate of �FSP : On the other hand, as a domestic ...rm becomes better over time, it may expand its own market share, causing the market share of FDI ...rms to decrease and lead to a smaller FSPit. In other words, within ...rm performance changes may cause FSPit to change. This reverse causality will result in a downward bias in the least squares estimate of �FSP : Another source of downward bias in the least squares estimate of �FSP is measurement error in FSPit. Given that I only use local supplier information for 2003 to construct FSPit, local suppliers are assumed to stay the same through our the sample period. While this limits the size of select bias once ...rm ...xed e¤ects are used, may nonetheless introduce measurement errors in FSPit that potentially may bias the least squares estimate of �FSP towards zero.

The overall bias in least squares estimate of �FSP is not clear, it depends on whether or not

> 18 Note that, it is in fact not that case that large or more productive domestic ...rms self select to buy from local suppliers that also serve FDI ...rms. The reader may be reassuring to know that when we regress the productivity of domestic ...rms on their foreign sibling status, it shows that ...rms that have foreign siblings are signi...cantly less productive than ...rms that do not have foreign siblings, controlling for industry-location-year ...xed e¤ects and other ...rm characteristics such as the share of the US and the EU market in total export, and the share of imported material in total material. These domestic ...rms that have FDI siblings are also not signi...cantly larger than other domestic ...rms that do not have FDI siblings. These results are available upon request due to space constraints.

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