# 17-078/IV (2017-09-05; 2018-10-01)

Author(s)
Christian Fons-Rosen, Universitat Pompeu Fabra, CEPR, and Barcelona Graduate School of Economics, Spain; Sebnem Kalemli-Ozcan, University of Maryland, CEPR, and NBER, the USA; Bent E. Sorensen, University of Houston and CEPR, the USA; Carolina Villegas-Sanchez, ESADE - Universitat Ramon Llull, Spain; Vadym (V.) Volosovych, Erasmus University Rotterdam, Erasmus Research Institute of Management, the Netherlands; Tinbergen Institute, The Netherlands
Keywords:
Multinationals, Competition, Technology, Selection, FDI, TFP
JEL codes:
E32, F15, F36, O16

We study the impact of FDI on the productivity of host-country firms. FDI has positive spillovers only when foreign and domestic firms use similar technologies. Channeling FDI to sectors where firms share similar technology would significantly increase productivity spillovers from FDI. We show that inventor mobility across sectors is a key channel of technology transfer. To deal with endogeneity concerns we control for sectoral productivity growth, construct a Bartik-style instrument based on the productivity growth of neighboring countries, and exploit differences in knowledge flows across sectors captured by an asymmetric patent citation matrix.