| Summary: | This note examines the relationship between the presence of foreign firms and total factor productivity (TFP) growth of domestic firms (called 'FDI, Foreign Direct Investment, spillovers') in Serbia over the period of 2005-16. The analysis finds evidence of FDI spillovers in Serbia. Domestic firms on average enjoy higher productivity because of the presence of FDI firms in the economy. Moreover, domestic firms that supply to FDI firms or are located in the same industry as FDI firms, enjoy higher productivity. This presumably stems from technology transfer, higher quality standards, or higher competition. However, productivity of domestic firms sourcing from industries with a large share of FDI firms find their productivity reduced, likely due to markups by foreign firms. The effect of FDI on productivity of domestic firms also varies by firm size and industry. Small firms benefit more from spillovers associated with backward linkages (when they supply to an FDI firm) but are worse off with more horizontal FDI (when they compete with FDI firms in the same industry). Firms in high-tech industries benefit more from horizontal and backward FDI spillovers, but firms in low-tech industries experience no effect. Lastly, firms in the transport manufacturing industry do not enjoy any FDI spillover from foreign firms in their industry
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