Does FDI promote regional development? Evidence from local and regional productivity spillovers in Greece

Studies on the productivity spillovers of FDI have concentrated on the nationalsectoral level. As a result, little is known about the impact of FDI on absolute
and relative regional economic performance. In this paper we examine this issue
by relying on a unique dataset of over 20,000 Greek firms for the period 2002-
2006 covering all sectors of economic activity. We examine the spatial
distribution of foreign-owned firms in the country and analyse the effect that
their presence – at the local, regional and national levels – has on the
productivity of domestic firms. We find strong evidence suggesting that foreignowned firms self-select into regions and sectors of high productivity. Net of this
selection effect, the impact of foreign presence on domestic productivity is
negative – although at the very local level some positive spillover effects are
identifiable. The bulk of the effects concentrate in non-manufacturing activities,
high-tech sectors, and medium-sized high-productivity firms. Importantly, this
effect is not constant across space however. Productivity spillovers tend to be
negative in the regions hosting the main urban areas in the country but positive
in smaller and more peripheral regions. In this way, despite the tendency of FDI
to concentrate in a limited number of areas within the country – those of the
highest level of development – the externalities that FDI activity generates to the
local economies appear to be of a rather equilibrating character.