Abstract

This Paper has attempted to address the spillover effect of FDI on productivity in the Egyptian and Polish manufacturing sector. Empirical analysis has been implemented to determine the factors that influence productivity. In explaining the spillover effect of FDI, the study will apply a two stage least squares technique using the data panel between 2006 and 2014 across 9 sub sectors of the Egyptian and Polish manufacturing sector. A Cobb Douglas production function was used where productivity is established as a function of capital, labor, foreign direct investment, exports, imports, and technology gap.

The results from the production function suggest that physical capital and labor force are the main factors in determining the manufacturing productivity that accordingly enhance the fact that both physical capital and labor inputs are important to the productivity of manufacturing sector. It is also found that the foreign presence enhance productivity in the Egyptian and Polish manufacturing sector. We view the positive effect of FDI on productivity as evidence which indicates that the FDI inflow is not merely a source of capital; it is also a conduit for technology transfer. On the other hand, both imports, and technology gap exert a negative and significant effect on productivity. This is due to high protection, high tariffs in Egypt , and the technology of foreign firms is too advanced for domestic firms to adjust and absorb. In addition exports have a negative but insignificant effect as exports are mainly low-skill products. 

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