Exploring the double-edged sword effect of outward FDI spillovers on domestic firms' productivity in an emerging market

Abstract

In this study, we demonstrate that the outward FDI of emerging market multinationals is another important source of FDI spillovers for domestic firms in emerging markets. Specifically, we argue that conceptualizing the effects of outward FDI spillovers on domestic firms' productivity as a "double-edged sword" is useful because such spillovers bring benefits and costs for domestic firms. Taking an institution-based view, we also examine how the institutionally shaped contexts within and outside domestic firms affect the link between outward FDI spillovers and domestic firms' productivity. Using a longitudinal data set on Chinese manufacturing firms, we empirically test our arguments. Our findings provide initial support for the double-edged sword effect of outward FDI spillovers on domestic firms' productivity in emerging markets. They also further illustrate the importance of integrating institution-based logics into explaining the potential effects of outward FDI spillovers.