# Contents

|1 Introduction ................................................................................................................................ 3|
|---|
|2.<br>Literature Review ................................................................................................................. 5|
|2.1 FDI Literature ...................................................................................................................... 5|
|Establishing FDI spillovers ............................................................................................. 5|
|Linking to upstream and downstream sectors, and tax incentives for FDI ..................... 6|
|2.2 GVC Literature .................................................................................................................... 7|
|GVC and MNEs .............................................................................................................. 7|
|FDI spillovers and GVC participation ............................................................................ 8|
|3 From GVC and FDI trends to conceptual framework ................................................................ 9|
|3.1 GVC and FDI trends ............................................................................................................ 9|
|3.2 Conceptual framework ...................................................................................................... 13|
|4 Data and Metrics....................................................................................................................... 15|
|4.1 Data .................................................................................................................................... 15|
|4.2 Metrics and variable definitions ......................................................................................... 16|
|5 Direct FDI Effects and GVC Participation ............................................................................... 19|
|5.1 Empirical strategy .............................................................................................................. 19|
|5.2 FDI has higher spillovers for sectors with lower GVC participation ................................ 20<br>Main results................................................................................................................... 20|
|Sensitivity analysis ....................................................................................................... 22|
|Robustness check .......................................................................................................... 23|
|Does FDI accelerate productivity growth? ................................................................... 26|
|When does the FDI effect peak? ................................................................................... 27|
|Testing for endogeneity: Does FDI increase sector-labor productivity? ...................... 28|
|5.3 Establishing the transmission mechanism of FDI spillovers ............................................. 29|
|5.4 Interpretation of results ...................................................................................................... 34|
|6 Extension of the framework: FDI spillovers through input and output linkages ..................... 36|
|6.1 Definitions of backward and forward FDI ......................................................................... 36|
|6.2 FDI spillovers take place through domestic input and output linkages ............................. 37|
|7 Concluding remarks and further research................................................................................. 38|
|References ................................................................................................................................... 41|
|Appendix table: Sector Classification of Multiregional Input–Output tables ............................. 44|