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What a difference an OFDI makes. Firm-level evidence from the EU

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  • Aktaş, Koray
  • Gattai, Valeria
  • Natale, Piergiovanna

Abstract

Using a large panel of European firms covering the years 2007–2015, this study investigates the effects of outward foreign direct investment (OFDI) on performance. Controlling for self-selection through propensity score matching techniques at baseline in a two-way fixed effect difference-in-differences framework, we determine that OFDI firms exhibit higher productivity, value-added, sales, and profit compared with non-OFDI firms. Heterogeneity analysis by destination reveals that the highest performance premia accrue to firms that invested in non-European Union (EU) countries, developed economies and technology-advanced hosts. Heterogeneity analysis by ownership structure shows that OFDI established via joint-venture or wholly owned enterprises have similar, positive performance premia. Furthermore, investing abroad entails no reduction in the parent companies’ number of employees. Finally, we document an increase in research and development expenditure for OFDI firms at both intensive and extensive margins, indicating a potential driver of the observed performance premia.

Suggested Citation

  • Aktaş, Koray & Gattai, Valeria & Natale, Piergiovanna, 2024. "What a difference an OFDI makes. Firm-level evidence from the EU," International Economics, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:inteco:v:180:y:2024:i:c:s211070172400060x
    DOI: 10.1016/j.inteco.2024.100537
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    More about this item

    Keywords

    Outward foreign direct investment (OFDI); Foreign direct investment (FDI); European Union (EU); Performance premia; Propensity score matching (PSM); Difference-in-differences (DID);
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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