The Causal Effect of Exporting and Multinational Acquisition on TFP in UK: An Evaluation Method Approach

This paper assesses the effect on total factor productivity (TFP) of a change in the status of a firm from domestic producer to either exporter or subsidiary of a multinational firm. It is an extension of earlier work that looks solely on the effect of exporting on TFP (Girma et al, 2003 and 2004 and Wagner, 2002). In particular, it estimates the differences in TFP between domestic, exporting firms or subsidiaries of multinationals after controlling for the likely presence of endogeneity using the Multiple Treatment Approach (Blundell and Costa Dias, 2000 and Lechner, 2001). Results show that firms that have become exporters experience higher TFP, between 7.8% and 8.8%, with respect to domestic producers. Productivity gains were also experienced for firms acquired by multinationals relative to domestic producers ranging from 11.5% to 13%. Finally, exporters have a lower annual TFP compared to firms acquired by multinationals by around 10 percentage points.