into a single investment category presuming uniform behavior and objectives — an approach used by most prior studies.

A few recent econometric studies are a right step in this direction. Farole and Winkler (2014) suggest that spillovers simultaneously depend on the three sets of mediating factors described above (from Farole and Winkler 2012). Further, the authors argue that while absorptive capacity and host country characteristics play the biggest roles in determining spillovers, FDI characteristics initially determine the ease for achieving potential spillovers. Using a cross‐sectional analysis of 25,000 manufacturing firms and survey evidence from selected countries and sectors, they find that in both cases, in the short term, market‐ seeking FDI is more likely than efficiency‐ and resource‐seeking FDI to develop linkages with suppliers and customers. Market‐seeking foreign investors tend to be more forward integrated and have a greater need for local management. They are also more likely to source from local markets and to provide assistance to suppliers than are efficiency‐ or resource‐seeking investors— with resource‐seeking investors doing the least local sourcing. In the short‐term, efficiency‐seeking foreign investors appear to be less integrated with the local economy thus far. This trend may stem from the fact that efficiency‐seeking FDI tends to focus on relatively more sophisticated production of goods and services. It also requires higher quality standards as its output is geared to highly competitive international markets. Thus, although this type of FDI may have the greatest potential in terms of value‐added spillovers in the long term, in the short term backward linkages may be more difficult to obtain as suppliers in host countries often lack the capacity to supply the quantity and quality of inputs required by foreign investors.

Sánchez‐Martín, De Piniés, and Antoine (2015) analyze the determinants of backward linkages from FDI for 3,500 foreign subsidiaries worldwide. They confirm that, in the short‐term, export‐oriented FDI tends to generate fewer backward linkages than market‐seeking FDI. Further, they suggest that this factor explains the low level of backward linkages in many service‐exporting Caribbean Islands. The authors also find significant effects for the size of the economy, that is, a positive relationship between economic size and linkages due to availability of local suppliers with sufficient quality and capacity to meet the demands of multinationals. Certain sectors, such as the food, wood, furniture, and automobile sectors create more linkages than garments, electronics, and some services. Finally, foreign owned affiliates with foreign‐ licensed technology tend to develop less backward linkages with local companies than other foreign affiliates, possibly because they may have already identified international suppliers to serve their specific production needs or because local firms do not have sufficient capacity or quality to supply technologically complex inputs.

Further, Farole and Winkler (2014) and Sánchez‐Martín, De Piniés, and Antoine (2015) find that while joint ventures are more likely to generate spillovers than totally foreign‐owned firms, not all types of FDI develop joint ventures. Farole and Winkler find that market‐seeking investors are far more likely to seek joint ventures than are export‐oriented ones, which tend to strongly prefer 100 percent ownership. More research and knowledge is needed to fully understand these behaviors across sectors and types of joint contracts, along with the identification of appropriate policy measures.

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