Foreign direct investment and productivity of firms

This paper analyzes the role foreign direct investment (FDI) played in the economic transition of the Czech Republic in the period 1993-1998, specific ally in the Czech manufacturing. The author uses a firm-level data set supp lied by Czech manufacturing industry during these years. FDI's impact on ma nufacturing firms' total factor productivity growth is examined, and the au thor analyzes the spillover effect of FDI on the performances of firms in o ther sectors associated with foreign investment. The results suggest that f irms with foreign participation achieved higher productivity growth rates t han domestically owned firms in the period under study. Among firms with fo reign participation, "green-field" enterprises performed slightly better in terms of total factor productivity growth than firms created through merge rs and acquisitions. FDI's spillover effect, however, is found to be statis tically insignificant, which does not support the hypothesis that foreign p resence positively affects the productivity growth of domestically owned fi rms.