Spillover Effects of Foreign Direct Investment: Evidence from the West Midlands of England

Abstract

This paper investigates the spillover effects of inward foreign direct investment (FDI) on firm-level productivity growth in the West Midlands of England for 2,198 firms operating in 75 industries over the period 2004–2011. In contrasts to earlier literature that emphasises the importance of backward linkages in both advanced and emerging market economies, our empirical analysis suggests there are strong forward spillovers from FDI taking place, through the linkages between foreign affiliates and their local consumers in downstream sectors in the West Midlands. However, we only find zero or weak positive spillover effects through backward and horizontal linkages.