Abstract/Summary

The paper analyzes how foreign multinational enterprises (MNEs) in services impact on domestic manufacturing firms. We argue that the impact on the productivity of local upstream and downstream firms differs due to the heterogeneity of services. We investigate a sample of foreign MNEs located in Italy, finding that (i) local suppliers enjoy positive spillovers from MNEs in highly innovative services; (ii) local customers enjoy positive spillovers from MNEs in services that stimulate interactions and generate knowledge that is redeployable; (iii) suppliers and customers with higher absorptive capacity enjoy higher benefits from MNEs in services whose internationalization process is at an early stage. Our findings confirm that indirect effects come from countervailing forces associated to intra-industry spillovers, whose net effect depends on the characteristics of the services considered.