We examine to what extent local firms can reap productivity gains from knowledge spillovers due to the presence of manufacturing affiliates of multinational firms, taking into account that domestic firms' internationalization through import and export activities may also lead toproductivity growth. We examine spillovers occurring within sectors as well as those potentially occurring across industries due to client or supply relations of local firms with foreign-owned affiliates in downstream and upstream sectors, respectively. Fixed affects panel analysis on asample of 4594 local Belgian firms during 2000-2007 reveal significant positive effects of horizontal and backward spillovers on the productivity levels of local firms. Evidence of productivity benefits due to forward linkages from foreign-owned affiliates supplying local firmsis only be found for local firms with no export or import activities. Both importing and exporting activities are associated with higher productivity. In general, backward spillovers are weaker for exporting firms, and forward spillovers do not benefit importing firms, suggesting that local spillovers from client/supply relations with foreign multinationals and internationalization can be seen as alternative ways in which internationalization of an economy can enhance productivity performance.
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