The effect of direct foreign investment on domestic firms : evidence from firm level panel data in emerging economies

This paper uses firm level panel data to investigate empirically the effects of direct foreign investment (DFI) on the productivity performance of domestic firms in three emerging economies of Central and Eastern Europe, Bulgaria, Romania and Poland. To this end and unique firm level panel data set is used with detailed information on foreign ownwership at the firmlevel. Three key questions are addressed in the present paper: (1) Do foreign firms perform better than their domestic counterparts? (2) Do foreign firms generate positive spillovers to domestic firms? (3) Do technological spillovers from foreign firms depend on the absorptive capacity of domestic firms?