Efficiency Spillovers From Foreign Direct Investment and Domestic-exporting Firms: The Case of Ethiopian Manufacturing

This study examines efficiency spillovers from foreign-owned and domestic-exporting firms in the Ethiopian manufacturing sector using a two-stage econometric approach. We estimate firm-level technical efficiency using the 'true' fixed effects stochastic frontier analysis and apply system generalized methods of moments to examine how spillovers impact the efficiency of local firms. Results show that the presence of domestic-exporting firms in the same sector increases the efficiency of local non-exporting firms with a higher absorptive capacity. Furthermore, spillovers from foreign-owned firms improve the efficiency of vertically linked domestic-exporting enterprises but negatively impact non-exporting firms. (c) 2020 John Wiley & Sons, Ltd.