Productivity spillovers from competition between local firms and foreign affiliates

Using detailed (unpublished) industry data from Mexican manufacturing, this paper estimates a simple simultaneous model to examine if there are signs of productivity spillovers from competition between local firms and foreign affiliates. The results are affirmative, but only when suspected ‘enclave’ industries are dropped from the sample. The spillovers from competition are not determined by foreign presence alone, but rather by the simultaneous interactions between foreign and local firms. This may explain some of the contradictory findings of earlier empirical spillover studies, most of which have assumed that the externalities are strictly proportional to foreign presence.