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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
Griffith, Rachel
Redding, Stephen J
Simpson, Helen

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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 the United Kingdom. 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 UK R&D. We discuss the implications of these and other findings for the policy debate on incentives to influence multinational firms’ location choices.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4691.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4691

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Related research
Keywords: foreign investment knowledge spillovers productivity

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
L80 - Industrial Organization - - Industry Studies: Services - - - General
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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References listed on IDEAS
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. 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)
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  5. 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)
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  7. 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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  8. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  9. 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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  10. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December. [Downloadable!] (restricted)
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  11. 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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  12. 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)
  13. 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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  14. 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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  22. 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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  23. 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. 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. Helen Simpson, 2007. "Investment abroad and adjustment at home: evidence from UK multinational firms," IFS Working Papers W07/07, Institute for Fiscal Studies. [Downloadable!]
  2. C. Bellac & R. Riegler, . "Proximity-Concentration Trade-Off," FIW Research Reports series 22, FIW. [Downloadable!]
  3. Martin Falk, . "Effects of Foreign Ownership on Innovation Activities - Empirical Evidence for 12 European Countries," FIW Research Reports series 20, FIW. [Downloadable!]
  4. 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:
  5. 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!]
  6. V. Brandicourt & C. Schwellnus & Julia Woerz, . "Austria's Potential for Trade in Services," FIW Research Reports series 2, FIW. [Downloadable!]
  7. 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!]
  8. 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!]
  9. Martin Falk & Rahel Falk, 2006. "Do Foreign-Owned Firms Have a Lower Innovation Intensity Than Domestic Firms?," WIFO Working Papers 275, WIFO. [Downloadable!]
  10. 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!]
  11. Hoekman, Bernard & Smarzynska Javorcik, Beata, 2004. "Policies facilitating firm adjustment to globalization," Policy Research Working Paper Series 3441, The World Bank. [Downloadable!]
    Other versions:
  12. Martin Falk, . "Testing Gibrat's Law for European Multinational Enterprises," FIW Research Reports series 14, FIW. [Downloadable!]
  13. Hugo Rojas-Romagosa, 2006. "Productivity Effects of FDI Inflows: A Literature Review," CPB Memoranda 170, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  14. 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, Micro economic Studies and Analysis Division. [Downloadable!]
  15. N. Bayerl & Oliver Fritz & Robert Hierlaender & G. Streicher, . "Exports, Services and Value Added - A National, International and Regional Analysis for Austria," FIW Research Reports series 8, FIW. [Downloadable!]
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