Does foreign ownership matter? : Multinational firms, productivity and spillovers

University dissertation from Örebro : Örebro universitetsbibliotek

Abstract: This thesis consists of four essays dealing with the role of foreign owned firms for the development of productivity and exports in Swedish manufacturing. The essays share a common theme, i.e. that multinational firms (MNF) possess some intangible assets that could be transferred to their affiliates.In Chapter II we find that the foreign-owned firms in Swedish manufacturing have a higher productivity (both level and growth) compared to Swedish domestic firms even after controlling for other variables affecting productivity. Moreover, this is not due to reverse causality, i.e. that foreign investors tend to acquire the most productive Swedish firms and that this would explain the difference in productivity. We also find that Swedish MNFs are as productive as foreign-owned firms and that the productivity effect of foreign ownership may differ according to mode of entry. Greenfield operations are found to be more productive than those in acquired firms.Chapter III revisits the question of whether ownership matters for productivity performance. An extensive literature has shown that it is important to study the counterfactual outcome, i.e. what would the outcome be had the domestic firm never been acquired? We use a propensity score matching estimator to compare similar treated and untreated firms. We then apply the difference-in-difference estimator and show that there is a positive effect on productivity due to foreign acquisition. Moreover, this effect on productivity does not occur immediately but starts around three years post acquisition. Foreign ownership is also found to boost productivity growth, not just the level of productivity.In Chapter IV we analyze whether FDI stimulates the productivity performance in domestic firms in the same industry and/or region or not. While most other studies using firm level data find no evidence of such externalities from FDI, we provide strong evidence for the existence of spillover effects from inward FDI to domestic firms. These spillover effects cannot be explained by reverse causality. We also find that the magnitude of these spillover effects depends on the absorptive capacity (measured as R&D expenditures) of the domestic firms and the nationality of the parent MNF.The last study in this thesis, Chapter V considers whether the effect of increased inward FDI has a positive or negative effect on domestic firms export behavior. The first case may occur as a result of demonstration effects, when local firms learn from foreign MNF to reduce exporting costs. The second may reveal congestion effects, defined here as the case when MNF contribute to congestion of e.g. transport networks or in general add to demand for inputs, driving up their prices, thus increasing costs of exporting for local firms. We also consider whether FDI affect the sunk costs or variable costs of exporting. Our results indicate that congestion effects dominate since increased inward FDI has led to a significant reduction in the probability of export market participation.

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