the most attractive emerging economies for FDI.<sup>17</sup> Thus, Jordan experienced significant increases in FDI which have the potential to generate spillovers. Indeed, the World Bank (2012) attributes Jordanian growth over the period in no small part to these FDI inflows (with half of total investment coming from foreigners). Second, growth and FDI in Jordan were negatively impacted by the global financial crisis in 2009-2010. The external shock led to sudden stop in foreign investments which generated a quasi natural experiment allowing to test for the impact of MNE exits and thus the nature of FDI spillovers. After 2009, FDI into Jordan declined substantially and many foreign subsidiaries exited in 2009 and 2010 as MNEs adjusted their portfolios to reduce exposure to high-risk investments in developing countries. From Table 2, which presents the summary statistics, we can infer that the number of foreign-owned establishments, implying at least 10% foreign ownership, fell from 338 to 142.<sup>18</sup> As can be seen from Table 3 this observation is confirmed when looking at the share if foreign ownership considering all companies (including not foreign owned) and disaggregating the sample to the industry level. Interestingly, for foreign owned firms the share of equity hold by foreigners was quite high with roughly 70% in both years.

Nevertheless, even during the crisis, some MNEs continued to enter and expand the size of their Jordanian investment.<sup>19</sup> Thus, the Jordanian data has both increases and decreases in FDI, with this churning necessary for us to compare persistent and transitory spillovers. Third, Jordan is a setting in which local firms may be poised to take advantage of the spillovers. Overall, Jordan was a low middle income developing country that grew strongly over the last decade based on market-oriented reforms and a favorable external environment becoming a upper middle income developing country as of 2010. This suggests that its firms have the absorptive capacity to take advantage of spillovers while remaining sufficiently far from the technological frontier that they have room for adopting more efficient foreign technologies or better management practices.<sup>20</sup> Thus, the Jordanian data is well suited to the issues we investigate.

As described in equation (6), our horizontal spillover, _φ_<sup>_H_</sup> _s,t_<sup>,capturestheextentofforeign</sup> presence in sector _s_ at time _t_ , which is defined as foreign equity participation averaged over all firms in the sector, weighted by each firm’s share in sectoral employment. Using (7), the backwards spillover, _φ_<sup>_B_</sup> _s,t_<sup>,measurestheforeignpresenceintheindustriesthatare</sup> being supplied by sector _s_ , calculated as the weighted sum of the various industries _φ_<sup>_H_</sup> _k,t_<sup>’s,</sup>

> 17See Davies et al. (2015) for a discussion on the patterns in FDI in developing economies during this period.

> 18We follow the international standard defining firms as foreign owned of they report at least 10% foreign ownership.

> 19More specifically, our sample contains 284 foreign owned companies where FDI has been reduced and 82 companies which report higher levels of foreign ownership or became foreign owned in 2011.

> 20See Damijan et al. (2013) for more discussion on absorptive capacity and spillovers.

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