Castillo, Leopoldo LabordaSalem, Daniel SotelsekGuasch, Jose Luis2012-03-192012-03-192012-01-01https://hdl.handle.net/10986/3217This paper examines two sources of global knowledge spillovers: foreign direct investments and trade. Empirical evidence demonstrates that foreign direct investment and trade can contribute to overall domestic productivity growth only when the technology gap between domestic and foreign firms is not too large and when a sufficient absorptive capacity is available in domestic firms. The paper proposes the terms research and development and labor quality to capture the innovative and absorptive capacity of the country. The spillover effects in productivity are analyzed using a stochastic frontier approach. This productivity (in terms of total factor productivity) is decomposed using a generalized Malmquist output oriented index, in order to evaluate the specific effect in technical change, technical efficiency change, and scale efficiency change. Using country-level data for 16 Latin American countries for 1996-2006, the empirical analysis shows positive productivity spillovers from foreign direct investment and trade only when the country has absorptive capacity in terms of research and development. Foreign direct investment and trade spillovers are found to be positive and significant for scale efficiency change and total productivity factor change.CC BY 3.0 IGOAGRICULTURECAPABILITYCAPABILITY BUILDINGCAPITAL EXPENDITURESCOMPARATIVE ADVANTAGECOMPARATIVE ECONOMICSCOMPETITIVENESSCOUNTRY RISKDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIRECT FOREIGN INVESTMENTDOMESTIC FIRMSDOMESTIC MARKETE-MAILECONOMETRICSECONOMIC DEVELOPMENTECONOMIC EFFICIENCYECONOMIC GROWTHECONOMIC RESEARCHECONOMIC SYSTEMSECONOMICSELASTICITYELECTRICITYEQUIPMENTEQUITY CAPITALEXCHANGE RATEEXCHANGE RATESEXCHANGE TRANSACTIONSEXPORTSEXTERNALITIESFDIFINANCE CORPORATIONFIXED CAPITALFIXED COSTSFIXED INVESTMENTFOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENTSFOREIGN EXCHANGEFOREIGN FIRMFOREIGN FIRMSFOREIGN INVESTMENTFOREIGN INVESTORSGDPGLOBAL DEVELOPMENT FINANCEGLOBAL ECONOMYGLOBAL KNOWLEDGEGROSS FIXED CAPITAL FORMATIONGROSS VALUEGROWTH CYCLESGROWTH THEORIESHOST COUNTRIESHOST COUNTRYHUMAN CAPITALINCOMEINDUSTRIAL COUNTRIESINDUSTRIAL DEVELOPMENTINDUSTRIAL ECONOMICSINDUSTRIALISING ECONOMIESINEFFICIENCYINNOVATIONINTERNATIONAL COMPETITIVENESSINTERNATIONAL ECONOMICSINTERNATIONAL FINANCEINTERNATIONAL FINANCIALINTERNATIONAL LABOUR ORGANIZATIONINTERNATIONAL STANDARDINTERNATIONAL TRADEKNOWLEDGE GENERATIONLABOR COSTSLABOR FORCELABOR MOBILITYLABOURLONG-TERM INVESTMENTSMANUFACTURINGMANUFACTURING FIRMSMANUFACTURING SECTORMARGINAL COSTMARKET POTENTIALMARKET STRUCTUREMATERIALMNEMULTINATIONAL CORPORATIONSMULTINATIONAL ENTERPRISEMULTINATIONAL ENTERPRISESNATURAL RESOURCENATURAL RESOURCESNEW TECHNOLOGYOPEN ACCESSOPEN ECONOMYOUTPUTSPHONEPOTENTIAL OUTPUTPRIVATE INVESTMENTPRIVATE SECTORPRIVATIZATIONPRODUCTION FUNCTIONPRODUCTION FUNCTIONSPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC POLICYR&DRAPID EXPANSIONREAL ESTATEREINVESTMENTREINVESTMENT OF EARNINGSRESULTRESULTSRETAIL TRADESUBSTITUTION EFFECTTECHNOLOGICAL CHANGESTECHNOLOGICAL PROGRESSTECHNOLOGY GAPTECHNOLOGY SPILLOVERTECHNOLOGY SPILLOVERSTECHNOLOGY TRANSFERTECHNOLOGY TRANSFERSTIME PERIODTIME PERIODSTOTAL FACTOR PRODUCTIVITYTOTAL FACTOR PRODUCTIVITY GROWTHTRADE POLICIESTRADE POLICYTRADE REFORMSTRANSITION COUNTRIESTRANSITION ECONOMIESUNEMPLOYEDUNSKILLED LABORUSESVALUE ADDEDVARIABLE COSTSWEBWORLD DEVELOPMENT INDICATORSWORLD TRADEWORLD TRADE ORGANIZATIONWorld Bank10.1596/1813-9450-5931