International Linkages and Productivity at the Plant Level:

Foreign Direct Investment, Exports, Imports and Licensing

Mahmut Yasar ∗
Department of Economics, Emory University, 306C Rich Building
Atlanta, Georgia 30322

Catherine J. Morrison Paul

Department of Agricultural and Resource Economics and the Giannini Foundation
University of California, Davis
One Shields Avenue,
Davis, California 95616

Abstract

Productivity growth may be affected particularly for developing countries by

international linkages or technology transfer. We evaluate relationships between
productivity and FDI, exports, imports and licensing for Turkish manufacturing plants in
the apparel, textiles, and motor vehicles industries. We assess performance premia
associated with these international technology transfer channels that control for plant size
and location. We then use a structural model to allow for plant-specific input composition
and interactions, estimated alternatively by quantile regression and semi-parametric
techniques to recognize plant heterogeneity and to accommodate simultaneity and
selection issues. Overall, we find that productivity is most closely related to foreign
ownership, especially for larger plants and in combination with other forms of technology
transfer, followed by exporting and then licensing.

Keywords: Importing; Foreign Direct Investment; Exporting; Firm Performance;

Technology Transfer

JEL Classifications: F10; F14; D21; L60

∗
Corresponding Author:
Tel: +1 404 712 8253; fax: +1 404 727 4639; E-mail: myasar@emory.edu (M. Yasar).
1. Introduction

Productivity growth determines the ability of an economy to improve its standard of living, and

is often considered to be the main source of cross-country income differences (Hall and Jones,

1999). An important issue in our increasingly global economic environment is thus whether

international linkages can enhance firms’ productivity and competitiveness. It may be

particularly important for developing or low/middle income economies such as Turkey to

identify how and to what extent productivity is related to international linkages that could narrow

the income gap from more developed countries.

Endogenous growth theory views innovation as the main source of productivity growth

(Romer, 1990, Lucas, 1988), although it may be associated with either internal or external

factors. In particular, studies have shown that international linkages or technology transfer may

be closely related to productivity growth (Coe and Helpman, 1995, Eaton and Kortum, 1999,

Keller, 2002). Countries such as Turkey that are still on a development path may especially rely

on the technology and knowledge produced by more developed countries rather than direct

investment in research and development. 1

Four main channels of international linkages appear in the literature. Foreign ownership

or foreign direct investment (FDI) is often considered the strongest conduit for international

technology transfer (Blomström and Kokko, 1998, Aitken and Harrison, 1999, Carr et al., 2001).

Learning by exporting has perhaps received the greatest attention (Kraay, 1997, Clerides et al.,

1998, Castellani, 2001, Bigsten et al., 2002, Girma et al., 2003). The role of technology

embodied in intermediate material and capital imports has been recognized (Grossman and

1
R&D expenditures for Turkey are, for example, only about 0.5 percent of GDP, compared to 2.4 percent for the

OECD countries, 2.6 percent for the U.S., and 2.9 percent for Japan (World Bank, 2004, average for 1996-2001).

1
Helpman, 1991, Xu and Wang, 1999, Eaton and Kortum, 2001). Foreign licensing has also been

considered (Eaton and Kortum, 1996), although it may not have a significant productive effect if

the best technologies are not available by license (World Investment Report, 2000).

These channels may have both separate and synergistic productive effects, as well as

linkages with internal factors such as input mix or size. Blomström and Kokko (1998), for

example, show that FDI may enhance host country firms’ productivity through knowledge flows

from cumulative R&D efforts in the foreign country, and of skilled employees and management

techniques across countries. However, productive effects may concurrently arise from exports

that move the domestic firms along the learning curve and imports of production technology by

the multinational enterprises. Augmenting labor force skills in the host country is also essential

for successful international technology transfer because it determines absorptive capacity

(Nelson and Phelps, 1966). Higher shares of technical or management workers would thus be

expected to be associated with greater productivity improvements from international linkages.

There are two primary hypotheses about how firm productivity is related to international

linkages. The first suggests that more productive firms self-select into, say, export markets,

because their characteristics make them better able to deal with the costs and complexities of

international markets. The second is that knowledge effects stem from exposure of exporting

firms to cutting-edge technology and managerial skills from their international counterparts.

Most empirical studies of export-productivity relationships support the self selection

hypothesis (Bernard and Jensen, 1995, Clerides et al., 1998, Aw et al., 2000, Delgado et al.,

2002), although others find learning-by-exporting (Kraay, 1997, Castellani, 2001, Bigsten et al.,

2002, Girma et al., 2003, Van Biesebroeck, 2005). Both of these effects may also be evident;

2
firms that participate in international markets may be inherently more productive but also

improve their productivity through international linkages (Yasar and Paul, 2005).

The role of firm heterogeneity in explaining relationships between productivity and

international technology transfer has also been explored theoretically. Melitz (2004) and Roberts

and Tybout (1997) find that more productive producers in an industry become exporters, and

Bernard et al. (2003) show that the heterogeneous efficiency underlying such choices implies

correlations across firms’ size, productivity, and export participation. Helpman et al. (2004)

confirm that more productive firms enter foreign markets, and that the most productive ones

engage in foreign direct investment.

Our objective is to examine the relationships between Turkish manufacturing plant

productivity (in the apparel, textile and motor vehicle industries) and all four technology transfer

channels, allowing for heterogeneous international linkages, plant characteristics, and input mix.

We first estimate within-industry proportional differences in performance indicators (premia),

controlling for plant characteristics such as location and size, for plants with and without

international linkages. We then directly examine production relationships underlying input

use/mix and international technology transfer through production function regressions that allow

a more structural analysis of plants’ productive processes and performance.

The structural analysis permits us to represent the productive effects of international

linkages in more detail than typical estimation of a simple functional relationship at the industry

or country level. However, plant heterogeneity raises implementation issues. For example, the

average productive effect of technology transfer may not well reflect the effects on different

plants with significant variations in capital intensity or size. Endogeneity issues inherent in

3
production function estimation are also exacerbated when attempting to measure and interpret

plant level productive impacts of international linkages. We deal with these issues in three ways.

First, representing the production technology by a flexible (translog) functional form

explicitly captures differential productivity patterns for plants with heterogeneous input

composition, reliance on international technology transfer, and other plant-specific

characteristics that our data allow us to identify. Second, using quantile regression techniques

allows for plant heterogeneity by representing the technology transfer effects at different points

of the conditional output distribution. Third, employing semi-parametric estimation including

international linkages as state variables accommodates simultaneity and selection bias.

Our overall conclusions are robust across methods. Our premia analysis suggests that

plants with a foreign ownership share (FDI) are the most productive, followed by plants that

export, especially in combination with other forms of international technology transfer. Plants

with international linkages are also larger, pay more, invest more, and hire more administrative

and technical workers. These findings are supported by the greater productivity effects

associated with FDI and exporting than licensing and importing, stronger productivity-

technology transfer relationships for larger plants, and higher productivity of especially larger

plants with more skilled labor, found from production function estimation. In addition, our

results show that a flexible functional form captures important input cross-effects, quantile

regression reflects productive discrepancies by plant size, and controlling for simultaneity and

selection bias increases the estimated productivity effects of technology transfer.

4
2. Data

Our analysis is based on unbalanced panel data for Turkish manufacturing plants with more than

25 employees, in the apparel 2 and textile (A&T) and motor vehicle and parts (MV&P) industries

from 1990-1996, 3 collected by Turkey’s State Institute of Statistics for the Annual Survey of

Manufacturing Industries. These industries combined generate about 50 percent of Turkey’s

manufacturing exports. 4 After cleaning the data to remove observations that had clearly

erroneous values or missing data 7024 observations remained, representing 1556 plants.

For international linkages, our data includes information on whether the plant exported

any products in the current year (EXP) and the sales share of exports (EXPS), whether the plant

imported any machine and equipment (IMP) and the investment share of those assets (IMPS),

whether the plant has any foreign ownership (FDI) and the foreign share (FDIS), and whether the

plant purchased any international technology through licensing (LIC). We also define dummy

variables representing the intersection of firms in multiple distribution channels as, e.g.,

EXPIMP=EXP•IMP to identify plants that are both exporters and importers.

Descriptive statistics of these variables, indicating the percent of plants falling into each

category for the dummy variables and the average plant values for the shares, are presented in

2
This industry includes all wearing apparel except fur and leather.
3
The export data are only available from 1990-1996, which restricted the sample for estimation purposes. These

data are similar to those used by Levinsohn (1993).

4
The textile, wearing apparel, and leather industry accounts for 35 percent of total manufacturing employment,

nearly 23 percent of wages, 20 percent of the output produced in the total manufacturing industry, and

approximately 48 percent of Turkish manufactured exports. The motor vehicle and parts industry accounts for 5

percent of total manufacturing employment, nearly 6.6 percent of wages, ten percent of the output produced in the

total manufacturing industry, and approximately 5.2 percent of Turkish manufactured exports.

5
Table 1. Note, for example, that in the A&T industry only 1 percent of plants with foreign

ownership did not utilize some other technology transfer mechanism, but 29 percent of the

observations showed exporting activity without any imports or FDI. 5 For another 6.5 percent of

observations the plants were both exporters and importers. The shares data further indicate, for

example, that the average share of foreign firms in the A&T industry is about two percent, and

the export intensity of the industry is about 27 percent.

For plant production variables, output (Y) is the deflated value of aggregate production,

with changes in inventory stocks taken into account. The material input (M) is deflated

intermediate materials expenditures, allowing for changes in material inventory stocks. The

energy input (E) is the deflated value of electricity and fuel. We use price deflators (in 1987

prices), also contained in the data, to divide the nominal values of these netputs to obtain their

real or “constant dollar” quantities. Labor quantity (L) is directly measured as total hours worked

in production (average hours worked times the number of employees). The capital input (K) is

measured by cumulating data on gross investment levels, deflated by a capital price index and

adjusted for depreciation (the perpetual inventory method). That is, K t = K t −1 (1 − δ ) + I t −1 , where

K t is the capital stock in period t, δ is the depreciation rate, and I t −1 is capital investment

between time periods t and t-1. 6

< INSERT TABLE 1 HERE >

For other plant-specific characteristics, we have data on the labor shares of

technical/engineering (TECHS), administrative (ADMS) and female (FS) workers. As shown in

Table 1, TECHS and ADMS are comparable for the two industries at about 2.5-4 and 15-20

5
Nearly 50 percent of the plants exported at some point during the sample period.
6
The assumed service lives for the fixed assets are 40 years for structures, 15 years for transportation equipment,
and 15 years for other machinery. The initial capital benchmark is computed by dividing a three-year average of
investment by the depreciation rate (Harper et al., 1989).

6
percent on average, but FS is much larger for the A&T industry. We also have data on the

expenditure shares of advertisement in total costs (ADV), inputs subcontracted to supplier plants

(SI), and output subcontracted by the other plants (SO). Our performance indicators include

average wages per employee (WAGE), capital machines/equipment per employee (MAC), total

investment per employee (TINV), the amount of administrative labor (LADM), the amount of

technical/engineering labor (LTECH), and total employment (EMP). As shown in Table 1, the

percentage of plants with less than 50 employees is 51 and 45 percent, with 50-100 employees

22 and 18 percent, and with more than 100 employees 26 and 36 percent, for the MV&P and

A&T industries, respectively.

3. Plant Performance of Firms with International Linkages

Our first objective is to assess the relationships between international linkages and

productivity/performance for these plants by evaluating correlation patterns. In particular, we

wish to measure the proportional differences between performance characteristics (Pit) of plants

that engage in international technology transfer (EXP, IMP, FDI, or LIC, in any combination),

and those that do not engage in these activities. We thus estimate the equation

10 R −1 T −1
ln Pit = β 0 + ∑ β jTTRANS jit + ∑ β r Dr + ∑ β t Dt + β EMP EMPit + uit (1)
j =1 r =1 t =1

separately for the A&T and MV&P industries and for the logs of various plant-by-time (i,t)

characteristics reflecting differential productivity, capital, and employment capabilities.

More specifically, our ln Pit indicators include, in addition to total factor and labor

productivity (TFP, LP), wages paid and employment (WAGE, EMP), the amounts of

administrative and technical labor (LADM, LTECH), and machines and total investment per

employee (MAC, TINV). These variables were chosen due to hypotheses in the literature that

7
firms with international linkages employ and pay more, and have higher capital intensity, than

domestic firms (Bernard and Jensen, 1995, Bernard and Wagner, 1997).

The technology transfer variables in TTRANSjit are the dummy variables EXP, FDI, IMP,

LIC, EXPFDI, EXPIMP, EXPLIC, FDIIMP, FDILIC, and IMPLIC that distinguish groups of

firms with different types and combinations of international linkages. Regional dummies, 7 Dr,

capture productivity differences from great development disparities in Turkey in terms of

infrastructure, rule of law, public service quality, and density. Year dummies, Dt, reflect

macroeconomic shocks and changes in the institutional environment. EMP, a measure of plant

size, represents differences in the production technologies of different size plants. 8

The parameter βj thus indicates the average differences in ln Pit (percentage premia in

terms of the performance characteristic Pit) between plants in each technology transfer group and

the plants that do not have any international linkages, conditional on region, year, and size. We

present these estimated coefficients in Tables 2a and 2b for the MV&P and A&T industries,

respectively, with the variables ordered by their effects on total factor productivity (TFP). These

coefficients can be used to calculate median differences between the groups by taking the antilog

of the estimated coefficient on a group dummy, subtracting 1, and multiplying by 100 to obtain a

percentage difference (Halvorsen and Palmquist, 1980). For example, the coefficient on EXP in

the MV&P ln TFP regression is 0.152. The median TFP of exporting-only plants in the MV&P

industry is thus computed as (e β EXP − 1) * 100 = (1.1642-1)*100 ≈ 16.4; it is higher than that of
ˆ

the base group by about 16.4 percent.

7
There are 7 main geographic regions in Turkey: East Anatolia, South-East Anatolia, Central Anatolia, Black sea,

Agean, Marmara, and Mediterranean (the first two were combined due to limited observations for East Anatolia).
8
This is omitted when the ln Pit measure is based on overall employment or is on a per employee basis

8
 Overall, most of the coefficients in the table are significant and positive, indicating that

plants in both industries with international linkages have higher productivity levels, are larger,

invest more, pay more, and hire more administrative and technical workers. We tested whether

the coefficients are equal between pair-wise groups, using F-tests, and found that the groups are

significantly different from each other, with few exceptions that include some combinations for

TFP and TINV in both industries and for LTECH in the A&T industry. 9

< INSERT TABLE 2a HERE >

In particular, significant total factor productivity differences across groups of plants are

evident from these measures. In the MV&P industry the most productive groups are plants that

have a foreign share and export (EXPFDI), plants that have a foreign share and obtain

technology through licensing (FDILIC), and plants that have a foreign share and import

machines and equipment (FDIIMP); the median TFP differences between these three groups and

the base group are 64.4, 45.5, and 45.4 percent, respectively. The top three groups in the A&T

industry are plants that export and have a foreign share (EXPFDI), plants with a foreign share

only (FDI), and plants that have a foreign share and import (FDIIMP), with median TFP

differences of 57.9, 57.6, and 41.9 percent from the base group. 10

< INSERT TABLE 2b HERE >

Our results for both industries support the finding of Bernard et al. (2003) that exporting

firms perform better and are larger than non-exporting firms. However, firms with foreign

ownership are even more productive relative to the base group, consistent with Helpman et al.

9
Details about these tests are available from the authors upon request.
10
If the export variable identifies plants that exported anytime during the time period rather than in the year under

consideration (by observation) the relative relationships are maintained but these premia become 44.6, 44.3 and 37.0

for the MV&P industry and 60, 54.6, and 40.2 for the A&T industry.

9
(2004), especially in combination with other forms of technology transfer. 11 That is, both

exporting and foreign-owned plants are more productive if they either import machines and

equipment or obtain technology through licensing, as shown by the coefficients on FDIIMP,

FDILIC, and EXPIMP, EXPLIC.

Helpman et al. (2004) also find that FDI sales relative to exports are larger in industries

with greater dispersion in firm domestic sales, which may arise from greater dispersion in

productivity. To assess the relative heterogeneity of our two industries we estimated their TFP

distributions by kernel density estimates, as shown in Figure 1. These distributions show broader

across-plant differences, or higher within-industry heterogeneity, for the A&T than the MV&P

industry. Combined with our finding that plants with a foreign share have higher median

productivity than comparison groups, and that these premia are greater in the A&T industry, this

also supports Helpman et al. (2004).

< INSERT FIGURE 1 HERE >

4. Econometric Analysis of Production Relationships

Our second objective is to estimate a translog production function for the plants in our data,

alternatively by ordinary least squares (OLS), quantile regression, and semi-parametric

regression techniques. This imposes more structure on our examination of the link between

productivity improvements and technology transfer, allowing the data to reveal more detailed

production structure relationships and their reliance on international linkages than simple

correlations. However, the great heterogeneity of the plants in our data raises questions about

inconsistent estimates across plants of widely differing sizes. Further, estimation of a production

function raises endogeneity/simultaneity problems, particularly if the results are interpreted in

terms of causal relationships.

11
This relationship is reversed, however, for labor productivity for the A&T industry.

10
 Although endogeneity issues arise for any production function estimation, because firms

choose both output and inputs, when evaluating the link between productivity and international

spillovers the results must be interpreted with particular care in terms of correlation versus

causation. Both self selection (more productive plants decide to enter international markets) and

learning (international markets enhance plants’ productivity through knowledge transmission)

likely underlie observed production relationships (Yasar and Paul, 2005). 12

We accommodate such concerns to some extent by our flexible functional form, which

allows the data to reveal differential production patterns for heterogeneous plants, and our rich

dataset, which allows us to take into account many typically unobserved production factors. That

is, because the first derivatives of a flexible production function vary by observation the

estimates accommodate differential plant-level input mix and other characteristics. In addition,

our alternative econometric methods permit us to evaluate the robustness of our results to

specifications that control for size heterogeneity and simultaneity/selection issues.

More specifically, we assume that the production function Y = f(X,R,t) for Turkish

manufacturing plants can be represented by a translog approximation to the general function:

ln Yit = α0 + Σj βj ln Xjit + βt t + Σm βm Rmit + Σj γjt ln Xjit t + ΣmΣj γmj Rmit ln Xjit

+ .5 (ΣjΣk δjk ln Xjit ln Xkit + δtt t2) + φit , (2)

12
Yasar and Paul (2005) examined the causal relationships for productivity using matching methods and found that

exports, imports and foreign direct investment all cause differences in both labor and total factor productivity. Plants

with international linkages were more productive and larger before matching, implying self selection, but comparing

matched plants shows greater productivity for plants with the same characteristics except these linkages.

11
where i and t are plant and time subscripts (hereafter suppressed in most cases for notational

simplicity), Xj, ( j = K,L,E,M) is the jth input in the production process, and φit is a stochastic

error term. The international linkage variables included in R are the shares of foreign ownership,

exports and imports, and the licensing dummy (FDIS, EXPS, IMPS, and LIC). Internal R vector

components include technical, administrative, and female worker shares (TECHS, ADMS, FS);

subcontracted input and output shares (SI, SO); and advertising expenditures (ADV). Dummy

variables included in R designate plant size (small, medium, large), 13 year, region and industry.

With great plant heterogeneity, however, standard econometric estimates of (2) may not

be representative of the entire conditional output distribution (Mata and Machado, 1996), even

for a flexible functional form that captures variability through cross-effects. Heterogeneity may

cause the dependent variable and error term to be independently but not identically distributed,

and thus OLS estimates to be inefficient. Further, if the distribution of the dependent variable is

highly skewed, extreme observations will have significant impacts on the estimates. For our data

we do find great heterogeneity in plant size, and that the distribution deviates from normality. 14

That is, quantile regression methods correct for inefficiencies in OLS estimation resulting

from this type of plant heterogeneity. They are relatively robust to departures from normality

because they place less weight on outliers in the distribution of the dependent variable. For our

application they allow us to represent differential productivity-international linkage relationships

13
The size dummies, where plants with less than 50 employees are deemed “small” and those with 100 or more

employees “large,” capture some scale-related technology differences.

14
More specifically, we used tests outlined by D’Agostino et al. (1990) to evaluate the distribution of Y and ln Y,

and found both to be positively skewed and leptokurtic (skewness = 0.000 and kurtosis = 0.000). We also applied a

Jarque-Bera test to an OLS model to examine the normality of the conditional distribution of residuals, and the

hypothesis of normality was rejected at the 0.01 significance level.

12
at different points of the conditional output distribution, or across very different size plants, as

suggested by the theoretical models of, e.g., Bernard et al. (2003). 15

Quantile regression can be expressed in the general form (Koenker and Basset, 1978,

Buchinsky, 1998) ln Yit = z 'it βθ + φit with Qθ (ln Yit / zit ) = z 'it β θ , where for our purposes z is a

vector of all the explanatory variables in (2) and β the vector of associated parameters. Qθ

denotes the θ th conditional quantile of ln Yit given z it and the size of operations. Estimates for

any quantile of the distribution of ln Y conditional on z are obtained by changing θ continuously

from zero to one, and using linear programming methods to minimize the sum of weighted

absolute deviations. This provides plant-size-specific information about the effects of regressors

on the dependent variable, rather than the effects of regressors at the conditional mean of the

dependent variable, as with OLS. The same measures may thus be computed as for OLS, but

they will differ by quantile – for different size plants. 16

Estimation of (2) also raises questions about simultaneity and selection biases. Since

plants choose input, technology transfer mechanisms and output simultaneously, unobserved

plant characteristics may cause the error term for (2) to be correlated with the arguments of the

production function. This violates the orthogonality of the error term with the inputs and

technology transfer variables, so standard OLS techniques are biased and inconsistent.

15
See Dimelis and Louri (2002) and Mata and Machado (1996).
16
Equality of the estimates for plants in the various quantiles can be tested using the variance-covariance matrix of

the system of quantile regressions, estimated by bootstrapping techniques. See Bassett and Koenker (1982) and

Hendricks and Koenker (1991) for further information on the computation of the test statistic. For a review of

quantile regressions see Koenker and Hallock (2001) and Buchinsky (1998).

13
 If one could include all omitted variables in the regression the error term would be

orthogonal to the inputs and technology transfer variables and the coefficients would

appropriately reflect plant productivity relationships. Although our data do capture key

production characteristics, leaving less unobserved heterogeneity than in many studies, not all

production determinants are observable. Also, lagging the technology transfer variables may help

to mitigate the problem, but this is not a complete solution since unobserved factors may affect

both production in year t and the technology transfer variables in year t-1.

We can also use the semi-parametric model of Olley and Pakes (1996) 17 to control for

remaining simultaneity and selection bias. 18 Applying this method requires assuming that a plant

chooses its variable inputs conditional on beginning of the period state variables, including a

productivity shock (assumed to follow a first-order Markov process) and the existing capital

stock. For our application FDIS, EXPS and IMPS also become state variables. Expected

productivity and resulting decisions about whether to produce or exit the industry and to invest in

capital are thus functions of these state variables.

That is, plants that experience a positive productivity shock in period t-1 will remain in

the marketplace and increase their capital investment in period t, so the inputs and technology

variables are correlated with the productivity shock, resulting in simultaneity bias. The first step

of the Olley and Pakes approach accommodates this bias by expressing the productivity shock as

a second-order polynomial function of the investment and state variables (FDIS, EXPS, IMPS

17
Attempts were also made to accommodate endogeneity by dynamic GMM procedures, but the lagged values of

the international linkage variables were weak instruments. The Sargan test for overidentifying restrictions suggests

that the endogenous variables dated t-2 and earlier are not valid instruments.
18
A similar procedure is implemented by Van Biesebroeck (2005) to examine the learning by exporting effects for

Sub-Saharan African manufacturing firms.

14
and K). Further, a plant with higher levels of state variables will expect higher future profitability

at current productivity levels and thus have less incentive to exit, resulting in selection bias. This

is dealt with in a second step by estimating the probability of a plant staying in the market as a

second order polynomial series in lagged investment and state variables. In the last step a semi-

parametric series estimator is approximated by a second-order polynomial to obtain consistent

coefficients on the state variables. The resulting estimates thus control for unobserved permanent

differences across plants, sample selection, and simultaneity.

5. Econometric Results

In preliminary estimation of equation (2) we included a full set of interaction terms between all

input and plant-characteristic variables, but ultimately omitted many from the model because

they were individually and jointly insignificant. In particular, although interaction terms were

significant for inputs, they were generally insignificant for the R vector components, so the γmj

terms were set to zero. The output implications from differences in these variables may thus be

assessed simply through their estimated first order coefficients, βm.

In addition, we initially alternatively used qualitative (dummy) and quantitative (share)

measures for the international linkage variables. The qualitative variables show whether or not

the plant engaged in international technology transfer (FDI, EXP, IMP, LIC), and the

quantitative measures reflect the intensity of technology transfer activity (EXPS, IMPS, FDIS).

For both specifications the international linkage (as well as employment characteristic) variables

were lagged by one year. We report the results using the quantitative measures because our

primary results were similar, the intensity measures better represent the extent of international

linkages, and the qualitative variables cannot be used as state variables for the OP model.

15
However, we comment below on some informative differences between these results and those

from a specification based on qualitative technology transfer variables.

< INSERT TABLE 3 HERE >

Table 3 presents the coefficient estimates of equation (2) for the trade and labor variables

we are focusing on, pooled across the industries for our alternative stochastic specifications, with

one, two, and three asterisks indicating statistical significance at the 1, 5, and 10 percent

significance levels. 19 The first column presents the estimates for the OLS regression, the second

to sixth columns the estimates for quantile regressions (at the 0.10, 0.25, 0.50, 0.75, and 0.90

output level quantiles), and the last column the estimates from the Olley-Pakes (OP) model.

The coefficient estimates for IMPS, EXPS and FDIS reflect productivity differences for

plants with a greater share of technology transfer. The OLS coefficient estimates on the

technology transfer variables have the expected positive signs and are statistically significant,

with the FDIS and export effects generally larger than those for licensing and imports, and the

FDIS effect greater than that for EXPS, consistent with the evidence from our performance

premia regressions and the literature overall. More specifically, the coefficient for FDI implies

that plants with a 0.1 (10 percent) larger foreign ownership share in year t-1 are about 2.2 percent

more productive in year t, conditional on the control variables. Similarly, the estimates indicate

19
The remaining production function estimates are available from the authors upon request. We initially tested

whether pooling was justifiable by doing separate estimation for the MV&P and A&T industries to see whether

significant differences were apparent, and found that they were not. We then pooled the industries but tested to see

whether coefficients for the two industries varied. The test results, F (4, 5237) = 0.14 and Prob > F = 0.9673, shows

that the regression coefficients do not significantly differ by industry. We interpret these results as evidence that, as

found by Bernard et al. (2003), within-industry heterogeneity dominates between-industry heterogeneity.

16
that a 10 percent higher export or imported technology share is associated with about 1.5 or 0.6

percent greater productivity, respectively.

In addition, plants that licensed international technology have an estimated (significantly)

higher output level of nearly 12 percent relative to those that did not. This effect is not directly

comparable to the other estimates, however, because it is based on a dummy variable and thus

reflects the implications of the existence rather than an increasing share of technology transfer.

For estimation alternatively based on qualitative measures of all technology transfer variables the

estimated productivity effects of the other international linkages were also larger. They indicated

that plants with a foreign share or that were exporters were about 13.5 percent, and those that

imported technology about 5 percent, more productive than those that did not. The estimate for

licensing was somewhat smaller (but still significant) in that specification, implying about 6.5

percent greater productivity for firms that licensed technology.

In turn, the quantile regression estimates generally span the OLS estimates and thus

maintain the relative rankings of the technology transfer effects, 20 but the extent of their

variability indicates the importance of recognizing the plant size differences. The coefficient on

FDIS is significant across the entire conditional output distribution but varies from about 0.10 to

0.26 from the lower to the higher quantiles, with a slightly lower estimate for the very largest

plants than for the 25th quantile, relative to 0.22 for OLS. For exporters the range is 0.13 to

0.165, with the peak at the 50th quantile, compared to 0.15 for OLS. Both plants with greater

import shares and those that obtain technology through licensing exhibit a relatively high

associated productivity for the plants in the 25th quantile, although the greatest licensing effect

20
This would be expected since they represent an additional dimension of variation. Although this is not true for

import share, such patterns have been found by others such as Mata and Machado (1996).

17
appears for the largest plants. 21 The statistical significance of size-related variations in

productivity effects was supported by hypothesis tests of differences in parameter estimates

between pairs of quantiles and across all quantiles. 22

The quantile regression results broadly suggest a greater productivity effect of

international linkages for larger plants, which is most definitive for FDI and least for IMP.

Alternative estimates based on qualitative international technology transfer variables revealed,

however, a stronger monotonic tendency for all channels, consistent with Bernard et al. (2003)

and Helpman et al. (2004). These relative differences suggest that although larger domestic-only

plants are less productive relative to comparable plants with international linkages, their share of

international activity need not be as large as for smaller plants to gain from these linkages.

Further, when simultaneity and selection biases are accommodated by OP estimation we

would expect the coefficients on the variable inputs to be lower, but on the state (technology

transfer and capital) variables to be higher, than with OLS. The estimates presented in Table 3

are consistent with these a priori expectations, although the relative effects of international

linkages are not changed; the productivity effect of FDI is the greatest, followed by exporting,

licensing, and importing. Specifically, the coefficients on the foreign share, export share, and

21
We also estimated a model including both in-plant and industry-level shares of export and foreign sales and

import investment, to reflect the possibility of spillovers from technology transfer. The magnitudes and significance

of the plant-level variables were essentially maintained with this adaptation, and only the export spillover variable

exhibited any statistical significance, particularly for the larger quartiles. The FDI variable was also highly

significant for the OP model, but not the quantile regressions (except the 0.9 quantile) and OLS.
22
The results of this test are available from the authors upon request.

18
imported investment share are 0.224, 0.151 and 0.059 for OLS and 0.318, 0.169 and 0.084 for

the OP model. 23

The more internal but related productivity effects of labor composition may also be

evaluated from the estimates in Table 3. For example, productivity may be related to a more

skilled workforce because adoption of new technology requires skilled labor. 24 This is broadly

supported by our estimated coefficients on technical and administrative personnel shares, which

are positive and the most significant for the OP model and the highest quantiles. In reverse, since

developing countries often utilize female labor for less technical jobs, female labor share may

indicate low skill levels. Our coefficient estimates confirm a negative productivity relationship

for female share, especially for the larger plants.

6. Concluding Remarks

In this paper we examined the relationships between international linkages through four

technology transfer channels and plant productivity in the Turkish apparel, textile, and motor

vehicles manufacturing industries. Our evaluation was based on both regressions of performance

indicators on international linkage variables, and estimation of a production function that

captures more production structure and interrelationships.

Our reliance on plant-level data, for our production function analysis in particular, raises

heterogeneity issues. Standard productivity measurement techniques implicitly assume that

plants within an industry share common productivity relationships, whereas they may actually

23
The biases were also as expected for the variable input and capital variables.
24
For example, Tan and Batra (1995) show that joint ventures with foreign companies can facilitate the transfer of

technology because they are implemented by foreign management and accompanied by training. Hanson and

Harrison (1999) note that plants that obtain new technology through licensing agreements and imported materials

need to hire workers with high skill levels in order to fully utilize the technology and imports.

19
differ in important ways. This potential heterogeneity is emphasized by Bernard et al. (2003),

Melitz (2004), and Helpman et al. (2004), who theoretically examine the effect of within-sector

heterogeneity of firms engaging in international activities.

Our use of a translog functional form generalizes standard Cobb-Douglas production

function models to capture plant heterogeneity through output-input interactions underlying

productivity and scale effects. Incorporating data on key plant characteristics normally

unobserved for econometric analysis also reduces difficulties arising from heterogeneity.

However, at least two issues remain that were controlled for using alternative stochastic models.

First, great variation in plant size could veil differences in productivity relationships for

different size plants, which we deal with using quantile regression techniques. Second,

endogeneity or simultaneity problems arise when including technology transfer variables in the

production function, which we accommodate using an Olley-Pakes (1996) semi-parametric

estimation procedure. The primary results do not differ substantively by stochastic specification.

However, as expected from theory, estimates of the productivity relationships with international

linkages vary by quantile, with stronger ties often apparent for the larger quantiles, and are

underestimated compared to the OP estimates.

Our results for all our estimation models and methods confirm that firms with

international linkages are more productive. In particular, they support findings in the recent

literature that foreign ownership (FDI) and exporting are positively related to plant-level

productivity, and that the FDI effect is greater than that for exports. Further, licensing and

importing technology are significantly related to productivity, and to the productivity

implications of FDI and exporting. In addition, internal plant characteristics such as the share of

skilled labor enhance the productive role of international linkages.

20
Acknowledgements

We would like to thank Omer Gebizlioglu, Ilhami Mintemur and Emine Kocberber at the State

Institute of Statistics in Turkey for allowing us access to the data for this study, and Erol Taymaz

for helpful discussions about the data. We also are indebted to Jonathan Eaton and two

anonymous referees for their constructive and useful suggestions.

21
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25
Table 1. Descriptive statistics, plant trade, labor and size characteristics
(percent of observations for dummy variables, plant averages for share and size variables)

MV&P Industry A&T Industries

Dummy variables
(1511 observations) (5513 observations)
FDI (only) 0.79 0.96
EXP (only) 12.51 28.62
IMP (only) 7.04 4.93
LIC (only) 2.63 0.14
EXPFDI 0.59 0.64
EXPIMP 5.46 6.47
EXPLIC 3.95 0.23
FDIIMP 1.45 0.89
FDILIC 3.03 0.13
IMPLIC 8.03 0.46
NONE 54.51 56.51
Shares
FDI 5.20 1.67
EXP 6.69 27.20
IMP 22.70 19.69
Technical workers 3.96 2.61
Administrative workers 18.81 15.20
Female workers 8.19 46.59
Size
<50 employees 45.36 51.31
50-100 employees 18.27 22.44
>100 employees 36.37 26.25

26
Table 2a: Percentage differences between groups, MV&P Industry
ln TFP ln LP ln WAGE ln EMP
0.497* 0.993* 0.662 1.420
EXPFDI (0.127) (0.257) (0.183)* (0.302)*
0.375* 1.523* 1.173 2.268
FDILIC (0.061) (0.113) (0.081)* (0.133)*
0.374* 1.601* 1.052 2.217
FDIIMP (0.084) (0.166) (0.118)* (0.195)*
0.322* 0.839* 0.717 1.187
LIC (0.062) (0.120) (0.085)* (0.140)*
0.289* 1.382* 1.297 2.710
IMPLIC (0.042) (0.073) (0.052)* (0.086)*
0.287* 1.027* 1.057 1.736
EXPLIC (0.054) (0.102) (0.073)* (0.120)*
0.152* 0.362* 0.348 0.916
EXP (0.032) (0.059) (0.042)* (0.069)*
0.118* 0.696* 0.687 1.392
EXPIMP (0.045) (0.087) (0.064)* (0.103)*
0.104* 0.437* 0.305 0.746
IMP (0.039) (0.075) (0.054)* (0.088)*
0.095 0.689*** 0.853 1.368
FDI (0.110) (0.214) (0.153)* (0.252)*

ln LADM ln LTECH ln MAC ln TINV

1.715 0.888 1.024 0.023
EXPFDI (0.374)* (0.322)* (0.484)** (0.574)
2.486 1.385 1.989 1.768
FDIIMP (0.241)* (0.208)* (0.313)* (0.305)*
2.833 1.991 0.712 0.519
FDILIC (0.165)* (0.142)* (0.214)* (0.225)**
1.650 1.013 0.853 0.617
LIC (0.174)* (0.153)* (0.243)* (0.280)**
3.161 2.253 1.965 1.722
IMPLIC (0.106)* (0.093)* (0.139)* (0.139)*
2.297 1.454 0.678 0.010
EXPLIC (0.148)* (0.128)* (0.196)* (0.214)
1.194 0.640 0.224 0.089
EXP (0.085)* (0.076)* (0.121)*** (0.136)
1.653 1.162 1.968 1.587
EXPIMP (0.127)* (0.110)* (0.175)* (0.169)*
0.776 0.752 1.513 1.403
IMP (0.109)* (0.097)* (0.145)* (0.144)*
1.770 0.988 1.804 1.798
FDI (0.311)* (0.268)* (0.404)* (0.444)*

27
 Table 2b: Percentage Differences between Groups, A&T Industry
ln TFP ln LP ln WAGE ln EMP
0.457* 0.950* 0.424 1.103
EXPFDI (0.092) (0.169) (0.074)* (0.142)*
0.455* 0.365** 0.426 0.533
FDI (0.075) (0.128) (0.056)* (0.107)*
0.350* 0.289** 0.513 1.278
FDIIMP (0.078) (0.145) (0.064)* (0.121)*
0.261* 0.899* 0.196 0.574
EXP (0.017) (0.028) (0.012)* (0.023)*
0.234 1.074* 0.412 1.576
FDILIC (0.206) (0.367) (0.162)** (0.308)*
0.222* 1.096* 0.403 1.229
EXPIMP (0.031) (0.055) (0.025)* (0.046)*
0.204*** 1.132* 0.853 2.113
IMPLIC (0.104) (0.201) (0.090)* (0.168)*
0.201 0.851* 0.428 0.930
EXPLIC (0.151) (0.260) (0.114)* (0.218)*
0.136 0.385*** 0.156 0.665
LIC (0.193) (0.222) (0.098) (0.186)*
0.046 0.541* 0.178 0.842
IMP (0.035) (0.059) (0.026)* (0.049)*

ln LADM ln LTECH ln MAC ln TINV

1.267 0.366 0.400 0.456
EXPFDI (0.184)* (0.185)** (0.263) (0.383)
0.830 0.036 0.951 0.811
FDI (0.139)* (0.158) (0.205)* (0.272)*
1.391 0.195 1.572 1.109
FDIIMP (0.157)* (0.148) (0.217)* (0.223)*
0.834 0.071 0.386 0.321
EXP (0.030)* (0.035)** (0.047)* (0.058)*
2.128 0.433 2.044 1.014
FDILIC (0.399)* (0.464) (0.549)* (0.642)
1.552 0.571 1.940 1.614
EXPIMP (0.060)* (0.060)* (0.091)* (0.092)*
2.682 1.011 1.713 1.235
IMPLIC (0.218)* (0.205)* (0.306)* (0.312)*
1.441 0.088 0.000 0.173
EXPLIC (0.282)* (0.269) (0.431) (0.524)
0.936 -0.169 1.326 1.220
LIC (0.241)* (0.253) (0.517)** (0.525)**
0.951 0.298 1.843 1.390
IMP (0.064)* (0.068)* (0.092)* (0.096)*
Notes: (1) Robust standard errors are in parentheses. *Significant at the 1% level. ** Significant at the 5% level.
***Significant at the 10% level. (2) The independent variables include year, size, and region dummies (the
regressions in which the dependent variable is employment or is on a per employee basis do not include the size
variable). Dependent variables are in natural logs. (3) The base group is the plants that do not have any international
linkages.

28
 Table 3: Output contributions (production function estimates, standard errors in parentheses)

Independent OLS Quantile Regression Estimates OP

Variables Estimates Estimates
0.10 0.25 0.50 0.75 0.90
0.224* 0.097*** 0.204* 0.198* 0.255* 0.236* 0.318*
FDI Share
(0.043) (0.055) (0.042) (0.039) (0.051) (0.074) (0.065)
0.151* 0.128* 0.163* 0.165* 0.136* 0.106* 0.169*
Export Share
(0.016) (0.021) (0.015) (0.014) (0.020) (0.029) (0.024)
0.059* 0.045*** 0.055* 0.052* 0.053* 0.014 0.084*
Import Share
(0.018) (0.024) (0.018) (0.017) (0.023) (0.034) (0.024)
Licensing 0.116* 0.096** 0.117* 0.094* 0.111* 0.139** 0.140*
Dummy (0.031) (0.041) (0.030) (0.028) (0.039) (0.057) (0.032)
Engineering 0.145*** -0.149 0.081 0.099 0.239** 0.328* 0.457*
Share (0.077) (0.100) (0.073) (0.069) (0.093)** (0.116) (0.118)
Administrative 0.135** 0.118 0.098*** 0.151* 0.166** 0.135*** 0.172*
Share (0.057) (0.086) (0.058) (0.051) (0.067) (0.069) (0.066)
-0.078* 0.003 -0.001 -0.031 -0.115* -0.123** -0.071**
Female Share
(0.028) (0.039) (0.028) (0.026) (0.035) (0.050) (0.035)
Apparel -0.294* -0.359* -0.351* -0.342* -0.272* -0.176* -0.306*
Industry (0.022) (0.029) (0.021) (0.020) (0.026) (0.037) (0.025)
Motor
0.134* 0.200* 0.162* 0.117* 0.090* 0.081*** 0.143*
Vehicles and
(0.025) (0.034) (0.024) (0.023) (0.030) (0.044) (0.028)
Parts Industry
0.230* 0.127** 0.162* 0.232* 0.222* 0.281* 0.211*
ln EMP
(0.038) (0.054) (0.038) (0.035) (0.048) (0.068) (0.044)
Note: *Significant at the 1 percent level. **Significant at the 5 percent level. ***Significant at the 10 percent level.

29
 MV&P A&T

1.2

.9

.6

.3

-3 -1 1 3
LNTFP

Figure 1. Kernel Density Estimate of the Distribution of Total Factor Productivity in the Apparel
and Textile and Motor Vehicle and Parts Industries

30