A long-standing debate has focused on the extent to which attracting foreign capital to a country can not only push the productivity frontier of receiving sectors, but also induce productivity catch-up throughout the economy. As multinational corporations (MNCs) lead in the global productivity race and drive most of today’s foreign direct investment (FDI), countries court MNCs hoping for a short-cut to productivity upgrading. While relationships between MNCs and local suppliers are not the only channel for productivity gains, they are usually seen as the main candidate. Whether countries actually experience widespread productivity gains through this channel, hinges on answers to two questions. First, do local firms see their productivity increase when they start supplying to MNCs? Second, are these supplying opportunities frequent enough to justify hopes of widespread productivity upgrades?
