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Effects of Foreign Ownership on Innovation Activities - Empirical Evidence for 12 European Countries

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  • Martin Falk

    (WIFO)

Abstract

In the present study we investigate the relationship between foreign ownership and innovation activities using the firm-level data of the third Community Innovation Survey (CIS) covering 12 European countries. Probit estimates based on 28,000 firms observations show that foreign owned firms are more innovative than domestic firms, particularly in the New EU Member States. However, results from the Blinder Oaxaca decomposition of the differences in the percentage of innovating firms between foreign owned and domestic firms reveals that the differences are mainly due to the different firm characteristics rather than the differences in coefficients. In particular, the dominance of foreign owned firms in the largest firm size group is the main factor contributing to the gap in the percentage of innovators between foreign owned firms and domestic firms. Furthermore, using the fractional logit model, we find that in the New EU Member States, foreign ownership has a positive and significant impact on the share of market novelties as well as on the share of new products in turnover. In this case, the results from the Blinder Oaxaca decomposition analysis indicate that the ownership difference in the share of innovative sales is not due to the differences in the observed firms' characteristics.

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Bibliographic Info

Paper provided by FIW in its series FIW Research Reports series with number I-020.

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Length: 37
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:wsr:ecbook:2008:i:i-020

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Related research

Keywords: Foreign Direct Investment; foreign ownership; multinational firms; product and process innovations;

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References

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  1. Alfred Kleinknecht & Kees Van Montfort & Erik Brouwer, 2002. "The Non-Trivial Choice between Innovation Indicators," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(2), pages 109-121.
  2. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
  3. Marion Frenz & Grazia Ietto-Gillies, 2007. "Does Multinationality Affect the Propensity to Innovate? An Analysis of the Third UK Community Innovation Survey," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 99-117.
  4. Rachel Griffith & Elena Huergo & Jacques Mairesse & Bettina Peters, 2006. "Innovation and Productivity across Four European Countries," NBER Working Papers 12722, National Bureau of Economic Research, Inc.
  5. Brouwer, Erik & Kleinknecht, Alfred, 1996. " Firm Size, Small Business Presence and Sales of Innovative Products: A Micro-econometric Analysis," Small Business Economics, Springer, vol. 8(3), pages 189-201, June.
  6. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign ownership and productivity: new evidence from the service sector and the R&D lab," IFS Working Papers W04/22, Institute for Fiscal Studies.
  7. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  8. Veugelers, Reinhilde & Cassiman, Bruno, 1999. "Make and buy in innovation strategies: evidence from Belgian manufacturing firms," Research Policy, Elsevier, vol. 28(1), pages 63-80, January.
  9. Janz, Norbert & Lööf, Hans & Peters, Bettina, 2004. "Firm Level Innovation and Productivity - Is there a Common Story Across Countries?," Working Paper Series in Economics and Institutions of Innovation 24, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  10. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  11. Sadowski, Bert M. & Sadowski-Rasters, Gaby, 2006. "On the innovativeness of foreign affiliates: Evidence from companies in The Netherlands," Research Policy, Elsevier, vol. 35(3), pages 447-462, April.
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Cited by:
  1. Choi, Suk Bong & Lee, Soo Hee & Williams, Christopher, 2011. "Ownership and firm innovation in a transition economy: Evidence from China," Research Policy, Elsevier, vol. 40(3), pages 441-452, April.
  2. Jaan Masso & Tõnu Roolaht & Urmas Varblane, 2010. "Foreign Direct Investment And Innovation In Central And Eastern Europe: Evidence From Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 67, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  3. Rahmouni, Mohieddine & Ayadi, Mohamed & YIldIzoglu, Murat, 2010. "Characteristics of innovating firms in Tunisia: The essential role of external knowledge sources," Structural Change and Economic Dynamics, Elsevier, vol. 21(3), pages 181-196, August.

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