Local Intermediate Inputs, Foreign Direct Investment and the Performance of Domestic Firms:

When Firms Share common Local Input Suppliers

by H.L. Kee

Comments by Michael Moore (GWU and IIEP)

Domestic Producers

Foreign marketsTFPSales per workerOutput per worker

Domestic Producers

Imported intermediate goods

Foreign marketsTFPSales per workerOutput per worker

Domestic ProducersFDI

Imported intermediate goods

Foreign marketsTFPSales per workerOutput per worker

Domestic ProducersiFDIi

Imported intermediate goods

Domestic intermediate good producers

Foreign marketsTFPSales per workerOutput per worker

“siblings” in sector i

Domestic ProducersFDI

Domestic intermediate good producers of i

Non-EU final marketEU final market

“Everything But Arms”

“siblings” in sector i

Data and Results

• Universe of Bangladeshi garment manufacturers (1999-2003)

• Positive effects on domestic firm performance (for many measures) with FDI presence served by domestic intermediate good producers

Strengths of paper

• Rich and detailed data set

• Very careful and appropriate econometrics

• Wide range of different specification with consistent results for various measures of firm performance– True for domestic firms that do not export to EU

Suggestions

Current

i

FDIi

Domestici

Suggestions

i

FDIi

Domestick

k

For i k

Suggestions

i

FDIi

Domestici not involved in exports

Unfair “complaint”

–Careful empirics Narrow lesson

• FDI in other countries?

• FDI in other Bangladeshi industries?