Quantifying productivity gains from foreign investment

We revisit the relationship between foreign investment and productivity of acquired firms. First, we construct a panel firm-level dataset for eight advanced European countries covering domestic and foreign acquisitions together with detailed balance sheet information for the years 1999–2012. Second,...

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Bibliographic Details
Published in:Journal of international economics 2021-07, Vol.131, p.103456, Article 103456
Main Authors: Fons-Rosen, Christian, Kalemli-Ozcan, Sebnem, Sørensen, Bent E., Villegas-Sanchez, Carolina, Volosovych, Vadym
Format: Article
Language:English
Subjects:
Advanced countries
Foreign investments
Labor productivity
Majority ownership
Multinationals
Research institutes
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Summary:We revisit the relationship between foreign investment and productivity of acquired firms. First, we construct a panel firm-level dataset for eight advanced European countries covering domestic and foreign acquisitions together with detailed balance sheet information for the years 1999–2012. Second, we address the challenge of identifying a causal relation. To that end, we compare foreign to domestic acquisitions in addition to accounting for the impact of majority versus minority acquisitions after controlling for country and sector trends. The productivity of foreign acquired affiliates increases modestly after four years, but only when majority stakes are acquired by foreigners. Our results are driven by foreign acquisitions and not by foreign divestment.
ISSN:0022-1996
1873-0353
DOI:10.1016/j.jinteco.2021.103456