Abstract

This paper examines the impact of foreign presence on productivity in manufacturing industries in Europe, using a balanced panel of firm-level data on the manufacturing industry in France, Italy and Spain over the 1992-97 period. We integrate two different datasets, which allow to control for unobserved heterogeneity and to compare spillovers from multinational enterprises in different countries. We find positive and significant externalities on Italian firms and non-significant effects on Spanish and French firms. A generalisation of the results obtained for individual countries is attempted by introducing structural characteristics of national industries. In particular, the role of differences in technological profiles between foreign and domestic firms are examined. It is shown that high productivity gaps between foreign and domestic firms tend to favour positive effects of FDI, while absorptive capacity, measured by host country firms' average productivity levels, does not leverage productivity spillovers from FDI.