PRODUCTIVITY SPILLOVERS FROM MULTINATIONAL CORPORATIONS: VULNERABILITY TO DEFICIENT ESTIMATION

Evidence on productivity spillovers from FDI to domestic firms is ambiguous. Incorrect estimation procedures may be one of the sources for the contradictory results obtained in empirical studies on this subject. We observe that inadequacy of the estimation procedures leads to a severe underestimation of the spillover effect. In discussing the appropriated econometric methodology, inconsistency due to simultaneity of FDI and other explanatory variables and endogeneity related to firm unobserved heterogeneity are specially addressed. Additionally, incorrect inference and the possible lack of precision in estimation due to the availability of few periods in the panel are also analysed.