Does FDI Spillover Exist in Central Asian Countries?

This paper investigates the FDI spillover effects in Central Asian countries (Uzbekistan, Kazakhstan, Tajikistan, and Kyrgyzstan). With the firm's business survey data (BEEPS) in 2002, 2005, 2009, and 2013 provided by the World Bank, Cobb-Douglas type functional form is used to estimate the horizontal and vertical (forward and backward) spillover effects. Considering that there is no official input-output table in these countries and more than half of FDI is from EU countries, the EU 17 input-output table in 2007 is used to access the vertical effects the assumption that the demand-supply chains by the multinationals are the same as those in EU. The estimated results show that while there is any clear evidence on horizontal and backward effects, OLS estimation of random effects model has positive and significant forward coefficient. When we incorporate instrumental variable to avoid endogeneity issue, the positive forward coefficient becomes insignificant. The estimated results by country and firm size (in terms of employment) show similar pattern of the aggregated results. The OLS forward coefficient results in Uzbekistan and Kazakhstan are significant although they become insignificant in random effect model with instrumental variable. Whereas the OLS results in large firms show positive and significant forward coefficients, their significant effects disappear with country dummies and instrumental estimation. Facing the inconclusive results from our analysis two aspects are needed to reconsider for further study: First, the export-import structures of these countries indicate deniable dependency on Russia and China. Second, our results should be compared with those of the FDI spillover effects of other areas such as East and South East Asian countries and Central East European countries.