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Why are Productivity and Wages Higher in Foreign Firms?

Author

Listed:
  • Sourafel Girma

    (University of Nottingham)

  • Steve Thompson

    (University of Leicester)

  • Peter W. Wright

    (CEPR and University of Nottingham)

Abstract

This paper uses a panel data framework to examine whether foreign firms in the UK have higher levels of productivity and set higher wage rates than domestic ones ceteris paribus, or whether this is due to unmeasured characteristics. Its main finding is that foreign firms are more productive, by between 8 and 15 per cent, being particularly efficient in their use of capital. These advantages feed through into the wage levels of their employees, whose wages are higher as a result, effects that are particularly pronounced for firms from the United States.

Suggested Citation

  • Sourafel Girma & Steve Thompson & Peter W. Wright, 2002. "Why are Productivity and Wages Higher in Foreign Firms?," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 93-100.
  • Handle: RePEc:eso:journl:v:33:y:2002:i:1:p:93-100
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    File URL: http://www.esr.ie/Vol33_1Girma.pdf
    File Function: First version, 2002
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    References listed on IDEAS

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    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Griffith, Rachel, 1999. "Using the ARD Establishment Level Data to Look at Foreign Ownership and Productivity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 109(456), pages 416-442, June.
    3. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-1240, September.
    4. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, vol. 46(4), pages 931-959, July.
    5. Mark E. Doms & J . Bradford Jensen, 1998. "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," NBER Chapters,in: Geography and Ownership as Bases for Economic Accounting, pages 235-258 National Bureau of Economic Research, Inc.
    6. Robert E. Baldwin & Robert E. Lipsey & J. David Richards, 1998. "Geography and Ownership as Bases for Economic Accounting," NBER Books, National Bureau of Economic Research, Inc, number bald98-1, January.
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. John P. Weche Geluebcke, 2011. "Foreign Ownership and Firm Performance in German Services: First Evidence based on Official Statistics," Working Paper Series in Economics 213, University of L√ľneburg, Institute of Economics.
    2. Elliott, Robert J.R. & Zhou, Ying, 2015. "Co-location and Spatial Wage Spillovers in China: The Role of Foreign Ownership and Trade," World Development, Elsevier, vol. 66(C), pages 629-644.
    3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," NBER Working Papers 9439, National Bureau of Economic Research, Inc.
    4. John P. Weche Geluebcke, 2012. "Foreign and Domestic Takeovers in Germany: First Comparative Evidence on the Post-acquisition Target Performance using new Data," Working Paper Series in Economics 249, University of L√ľneburg, Institute of Economics.
    5. Koen De Backer & Leo Sleuwaegen, 2005. "A closer look at the productivity advantage of foreign affiliates," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 17-34.
    6. repec:bla:worlde:v:39:y:2016:i:12:p:1947-1973 is not listed on IDEAS
    7. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    8. Bridgman, Benjamin, 2014. "Do intangible assets explain high U.S. foreign direct investment returns?," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 159-171.

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