Foreign investment and productivity growth in Czech enterprises

This article uses firm-level data for the Czech Republic to show that durin g 1992-96 foreign investment had the predicted positive impact on total fac tor productivity growth of recipient firms. This result is robust to correc tions for the sample bias that arises because foreign companies tend to inv est in firms whose initial productivity is above average. Together, joint v entures and foreign direct investment appear to have a negative spillover e ffect on firms that do not have foreign partnerships. However, with foreign direct investment alone, the magnitude of the spillover becomes much small er and loses significance. This result, in conjunction with the fact that j oint ventures and foreign direct investment account for a significant shave of total output in many industries, suggests that further research is requ ired to determine the extent of Knowledge diffusion from firms that have fo reign links to those that do not.