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Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case of Japanese firms

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  • ITO Keiko

Abstract

This paper examines whether and how the entry of foreign multinational firms affects productivity growth of domestically owned firms, using Japanese firm-level data for the period 2000-2007. Although there are a considerable number of studies conducting productivity analyses on foreign multinationals and domestic firms for the manufacturing sector, there are few such studies for the service sector. Against this background, the present paper focuses on the role of foreign entry in the service sector, where cross-border trade is often difficult and firms are therefore less likely to be exposed to international competition. The results of the analysis suggest that foreign multinationals perform better than domestically owned firms in many sectors. However, although the productivity levels of the former tend to be higher than those of the latter, no significant difference in productivity growth rates is found. Moreover, once firm-fixed effects are controlled for, foreign presence in a particular industry tends to negatively affect the productivity growth rate of domestically owned firms in the industry. However, firms that are catching up with the productivity frontier enjoy positive FDI spillovers, implying that foreign entry accelerates productivity catch-up.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11063.

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Length: 36 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:eti:dpaper:11063

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References

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  1. Maurice Kugler, 2006. "Spillovers From Foreign Direct Investment:Within Or Between Industries?," BORRADORES DE ECONOMIA 003523, BANCO DE LA REPÚBLICA.
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  17. Ito, Keiko & Fukao, Kyoji, 2005. "Foreign direct investment and trade in Japan: An empirical analysis based on the Establishment and Enterprise Census for 1996," Journal of the Japanese and International Economies, Elsevier, vol. 19(3), pages 414-455, September.
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  20. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June.
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  22. Javorcik, Beata S. & Saggi, Kamal & Spatareanu, Mariana, 2004. "Does it matter where you come from? vertical spillovers from foreign direct investment and the nationality of investors," Policy Research Working Paper Series 3449, The World Bank.
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