Productivity Spillovers From Foreign Direct Investment To Ethiopian Manufacturing Sector

Abstract The study attempted to investigate productivity spillover from FDI to domestic firms in Ethiopian manufacturing industries. The analysis was conducted using panel data for the years 2011 up to 2016 on 260 large and medium scale-manufacturing firms deployed under 24 industries. The System Generalized Method of Moments (SYS-GMM) estimator was employed to conduct the analysis. Accordingly, the study found that a coexistence of both negative and positive effects from FDI through productivity spillover to domestically owned firms using absorptive capacity as determining factor of spillover occurrence in moderate level. Specifically, foreign presence in industry contributed a positive and significant horizontal and backward productivity spillover effect to domestic firms within the industry in average level. The horizontal productivity spillover transmitted to local firms through demonstration and competition effects in moderate level. Likewise, vertical productivity spillover occurred through the channel of sales of intermediate goods and services to foreign firms. Finally, we can conclude that technology gap is critical factor among those factors that determines the productivity spillover occurrence.