Inward Foreign Direct Investment, Transactions, and Domestic Firms' Performance: Evidence from firm-to-firm transaction linkage

Author Name ITO Tadashi (Gakushuin University) / TANAKA Ayumu (Research Associate, RIETI)
Creation Date/NO. March 2023 23-E-026
Research Project Studies on Foreign Direct Investment and Multinationals: Impediments, Policy Shocks, and Economic Impacts
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Many studies have attempted to use industry-level variations in the presence of foreign firms to estimate the impact of foreign firms on domestic firms. However, owing to the limitations of industry-level data, the channels through which foreign firms influence domestic firms are unclear. Our study used a large set of Japanese firm-to-firm transaction data to test whether domestic firms’ performance improves through firm-to-firm transactions with foreign-affiliated firms. Our empirical analyses using the state-of-the-art technique of causal inference, such as event study design and staggered difference-in-differences estimator, show no evidence of positive spillover effects of MNEs on domestic firms through business transactions.