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Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab

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Author Info
Rachel Griffith

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Abstract

This paper examines the relationship between foreign ownership and productivity, paying particular attention to two issues neglected in the existing literature--the role of multinationals in service sectors and the importance of R&D activity conducted by foreign multinationals. We review existing theoretical and empirical work, which largely focuses on manufacturing, before presenting new evidence using establishment-level data on production, service, and R&D activity for Great Britain. We find that multinationals play an important role in service sectors and that entry of foreign multinationals by takeover is more prevalent than greenfield investment. We find that British multinationals have lower levels of labour productivity than foreign multinationals, but the difference is less stark in the service sector than in the production sector, and that British multinationals have lower levels of investment and intermediate use per employee. We also find that foreign-owned multinationals conduct a substantial amount of British R&D. We discuss the implications of these and other findings for the policy debate on incentives to influence multinational firms' location choices. Copyright 2004, Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 20 (2004)
Issue (Month): 3 (Autumn)
Pages: 440-456
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Handle: RePEc:oup:oxford:v:20:y:2004:i:3:p:440-456

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cameron, G., 1998. "Catch-Up and Leapfrog Between The USA and Japan," Economics Papers 148, Economics Group, Nuffield College, University of Oxford.
  2. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 529-54, July. [Downloadable!] (restricted)
  3. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May. [Downloadable!] (restricted)
  5. Bruno Van Pottelsberghe De La Potterie & Frank Lichtenberg, 2001. "Does Foreign Direct Investment Transfer Technology Across Borders?," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 490-497, August. [Downloadable!] (restricted)
  6. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February. [Downloadable!] (restricted)
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  7. Richard Harris & Catherine Robinson, 2003. "Foreign Ownership and Productivity in the United Kingdom Estimates for U.K. Manufacturing Using the ARD," Review of Industrial Organization, Springer, vol. 22(3), pages 207-223, May. [Downloadable!] (restricted)
  8. Eric J. Bartelsman & Mark Doms, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September. [Downloadable!] (restricted)
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  9. Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, Oxford University Press, vol. 19(2), pages 171-197.
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  10. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  11. Rachel Griffith & Stephen Redding & John Van Reenen, 2004. "Mapping the Two Faces of R&D: Productivity Growth in a Panel of OECD Industries," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 883-895, December. [Downloadable!] (restricted)
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  12. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August. [Downloadable!] (restricted)
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  13. Stephen Nickell & Stephen Redding & Joanna Swaffield, 2008. "The Uneven Pace of Deindustrialisation in the OECD," The World Economy, Blackwell Publishing, vol. 31(9), pages 1154-1184, 09. [Downloadable!] (restricted)
  14. Rachel Griffith & Stephen Redding & John Van Reenen, 2003. "R&D and Absorptive Capacity: Theory and Empirical Evidence," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(1), pages 99-118, 03. [Downloadable!] (restricted)
  15. Sourafel Girma, 2005. "Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 281-306, 06. [Downloadable!] (restricted)
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  16. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages F723-39, November. [Downloadable!] (restricted)
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  18. Volker Nocke & Stephen Yeaple, 2004. "Mergers and the Composition of International Commerce," NBER Working Papers 10405, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Nigel Driffield & Max Munday & Annette Roberts, 2002. "Foreign Direct Investment, Transactions Linkages, and the Performance of the Domestic Sector," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 9(3), pages 335-351, November. [Downloadable!] (restricted)
  20. Serapio Jr., Manuel G. & Dalton, Donald H., 1999. "Globalization of industrial R&D: an examination of foreign direct investments in R&D in the United States," Research Policy, Elsevier, vol. 28(2-3), pages 303-316, March. [Downloadable!] (restricted)
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  22. Helpman, Elhanan, 1985. "Multinational Corporations and Trade Structure," Review of Economic Studies, Blackwell Publishing, vol. 52(3), pages 443-57, July. [Downloadable!] (restricted)
  23. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June. [Downloadable!]
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  24. Rachel Griffith & Stephen Redding & Helen Simpson, 2003. "Productivity Convergence and Foreign Ownership at the Establishment Level," CEP Discussion Papers dp0573, Centre for Economic Performance, LSE. [Downloadable!]
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  25. Baumol, William J & Wolff, Edward N, 1984. "On Interindustry Differences in Absolute Productivity," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1017-34, December. [Downloadable!] (restricted)
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  26. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December. [Downloadable!] (restricted)
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  27. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  28. Davies, Stephen W & Lyons, Bruce R, 1991. "Characterising Relative Performance: The Productivity Advantage of Foreign Owned Firms in the UK," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 584-95, October. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Damijan, Jože P. & Kostevc, Crt, 2007. "Knowledge Transfer, Innovation and Growth," Papers DYNREG06, Economic and Social Research Institute (ESRI). [Downloadable!]
  2. Helen Simpson, 2007. "Investment abroad and adjustment at home: evidence from UK multinational firms," IFS Working Papers W07/07, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  3. Priit Vahter & Jaan Masso, 2006. "Home versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers," William Davidson Institute Working Papers Series 820, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  4. Hylke Vandenbussche & Chang Tan, 2005. "The Taxation of Multinationals: Firm Level Evidence for Belgium," LICOS Discussion Papers 16005, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  5. Carol Corrado & Paul Lengermann & Larry Slifman, 2007. "The contribution of multinational corporations to U.S. productivity growth, 1977-2000," Finance and Economics Discussion Series 2007-21, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Kox, Henk L.M. & Lejour, Arjan, 2006. "Dynamic effects of European services liberalisation: more to be gained," MPRA Paper 3751, University Library of Munich, Germany. [Downloadable!]
  7. Martin Falk & Rahel Falk, 2006. "Do Foreign-Owned Firms Have a Lower Innovation Intensity Than Domestic Firms?," WIFO Working Papers 275, WIFO. [Downloadable!]
  8. James H. Love & Stephen Roper & Jun Du, 2007. "Innovation, Ownership and Profitability," DRUID Working Papers 07-10, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
    Other versions:
  9. Joel Stiebale & Frank Reize, 2008. "The Impact of FDI on Innovation in Target Firms," Ruhr Economic Papers 0050, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  10. Hoekman, Bernard & Smarzynska Javorcik, Beata, 2004. "Policies facilitating firm adjustment to globalization," Policy Research Working Paper Series 3441, The World Bank. [Downloadable!]
    Other versions:
  11. Marc Schiffbauer & Iulia Siedschlag & Frances Ruane, 2009. "Do Foreign Mergers and Acquisitions Boost Firm Productivity?," Papers WP305, Economic and Social Research Institute (ESRI). [Downloadable!]
  12. Hugo Rojas-Romagosa, 2006. "Productivity Effects of FDI Inflows: A Literature Review," CPB Memoranda 170, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  13. Baldwin, John R. & Gu, Wulong, 2005. "Global Links: Multinationals, Foreign Ownership and Productivity Growth in Canadian Manufacturing," The Canadian Economy in Transition 2005009e, Statistics Canada, Economic Analysis Division. [Downloadable!]
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