spillovers in Morocco, which was attributed to possible adverse effects of increased competition offsetting positive spillovers from FDI.

Numerous studies on horizontal FDI spillovers have followed since, showing ambiguous effects of FDI on domestic productivity (see, for extensive literature reviews, Görg and Greenaway 2004; Lipsey and Sjöholm 2005; Smeets 2008, among others). In a review of 40 studies on horizontal productivity spillovers, Görg and Greenaway (2004), found that 20 studies reported statistically significant evidence of positive spillovers, while only 6 studies reported negative spillovers. However, they raised concerns over the robustness of the cross-sectional studies—almost all showed positive effects. By contrast to the 28 panel studies, only 6 studies reported positive spillovers, while 4 studies reported negative spillovers, and the large majority (18 studies) showed ambiguous results. Indeed, Paus and Gallagher (2008) concluded in their literature overview that regressions based on cross-sectional data tend to find positive spillovers, while those based on panel data are more likely to find negative spillovers.

In a seminal study using panel data for Lithuania, Javorcik (2004a) shifted the focus to vertical spillovers and introduced a measure of backward and forward spillovers based on input-output data, which has been widely used since. Besides finding positive horizontal spillovers, Javorcik (2004a) confirmed positive backward spillovers, but rejected the existence of forward spillovers. Since then, there has been a “virtual explosion of studies on vertical spillovers” (Havranek and Irsova 2011, p.1), including Blalock and Gertler’s (2008) widely cited study on Indonesian manufacturing firms that confirms the positive backward spillovers. In a comprehensive meta-analysis, Havranek and Irsova (2011) took into account 3,626 estimates from 55 studies on vertical spillovers, and found evidence of positive and economically important backward spillovers from multinationals to local suppliers in upstream sectors and smaller positive effects to local customers in downstream sectors. However, the authors rejected the existence of horizontal FDI spillovers. The findings suggest that a 10-percentage-point increase in foreign presence increases productivity of local firms in upstream sectors by around 9 percent.

# **2.2. Transmission Channels**

Expanding and strengthening a country’s GVC participation may lead to higher output, productivity, value added, and jobs through a variety of channels (Taglioni and Winkler 2016).

- (1) The transmission channels include _backward links_ , that is, GVC-linked purchases of international inputs, spurring production and productivity in various downstream sectors via an increased availability and quality of inputs and knowledge diffusion effect; and _forward links_ , that is, sales of GVC-linked local intermediates to international buyers, spurring production and productivity in various upstream sectors via the demand for more or better inputs and assistance extended to local suppliers.

- (2) Second, GVC participation can translate into pro-competitive _market restructuring effects_ that are not limited to GVC participants, but also extend to nonparticipants, as GVC participation increases competition for limited resources in the country, overall average productivity increases in the medium run. Moreover, knowledge and technology spillovers arise from direct imitation or reverse engineering by local firms (demonstration effect).

- (3) Third, _technology spillovers_ lead to improved productivity of local firms in the same or related downstream, or upstream sectors as a result of GVC production via the diffusion, availability and quality, and demonstration effects described above.

- (4) Fourth, GVC participation may stimulate investments in infrastructure that would otherwise not be profitable and may spur local production and productivity in other sectors through _minimum_

7