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Foreign Ownership, Returns to Scale and Productivity: Evidence from UK Manufacturing Establishments

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  • Girma, Sourafel
  • Görg, Holger

Abstract

This paper calculates returns to scale and productivity growth in UK manufacturing establishments in the electronics and food industries. Our results show that foreign establishments tend to have lower returns to scale than their domestic counterparts. We also examine the effect of the acquisition of a domestic establishment by a foreign owner on returns to scale and productivity growth. We use a matching and difference-in-differences methodology which allows us to construct a reasonable counterfactual and to determine the post-acquisition changes in RTS and productivity that can be attributed to the incidence of acquisition, rather than to changes in other external conditions. In both sectors, acquisition has a negative effect on RTS, although the effect appears stronger in the food sector. The effect of foreign acquisition on productivity differs between sectors; establishments in the electronics sector experience a reduction in productivity post acquisition, while plants in the food sector increase productivity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3503.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3503

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Keywords: acquisitions; foreign direct investment; productivity; returns to scale;

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References

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Cited by:
  1. Sergio Salis, 2006. "Evaluating the Causal Effect of Foreign Acquisition on Domestic Performances: The Case of Slovenian Manufacturing Firms," William Davidson Institute Working Papers Series wp803, William Davidson Institute at the University of Michigan.
  2. Giorgio Barba Navaretti & Davide Castellani, 2003. "Investments Abroad and Performance at Home Evidence from Italian Multinationals," Development Working Papers 180, Centro Studi Luca d\'Agliano, University of Milano.
  3. Guest Editors & Ana Teresa Tavares & Stephen Young, 2005. "FDI and multinationals: patterns, impacts and policies," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 3-16.

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