Abstract. This paper examines the impact of horizontal and vertical spillovers from foreign direct investment on a firm’s decision to export, and on export share. Using Heckman selection models, the export spillover hypothesis is tested using firm-level data from Turkish manufacturing firms. The empirical evidence reveals that domestic firms seem to benefit only in a limited way from export spillovers. Except for backward spillovers to exporters with adequate absorptive capacity, there is no evidence of forward and horizontal spillovers to domestic exporting firms, even when they increase their absorptive capacity. However, the findings also suggest that increases in absorptive capacity will first increase but eventually reduce the export share of domestic firms. Furthermore, the results reveal negative horizontal spillovers and no evidence of vertical spillovers to nonexporters. This may well indicate negative competition effects resulting from entry of foreign firms into domestic markets, and high sunk entry costs to export markets.

Keywords: Foreign Direct Investment (FDI), export spillovers, absorptive capacity, horizontal linkage, vertical linkage.