Picking winners or creating them? Revisiting the benefits of FDI in the Czech Republic

We examine whether publicly-traded Czech firms that received foreign direct investment (FDI) before the end of 1995 had higher levels of total factor productivity during 1995-8. Preliminary data analysis reveals that, as restructuring occurred, many Czech firms left the sample during 1995-8 and that the recipients of FDI tended to be larger firms. We show that failing to tackle the associated sample attrition and selection problems substantially biases the estimated effects of FDI-as does pooling observations across industries (a common practice in the literature). Interestingly, taking account of only a subset of these concerns yields at best mixed results for the effects of FDI. In contrast, taking account of all of these econometric concerns produces a coherent pattern across industries of estimates of substantial benefits to firms that receive FDI.