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Former Foreign Affiliates: Cast Out and Outperformed?

Author

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  • Beata Javorcik
  • Steven Poelhekke

Abstract

The literature has documented a positive effect of foreign ownership on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we focus on divestments, that is, foreign affiliates that are sold to local owners. To examine the effect of the ownership change we combine a difference-in-differences approach with propensity score matching. We use plant-level panel data from the Indonesian Census of Manufacturing covering the period 1990–2009. We consider 157 cases of divestment, where a large set of plant characteristics is available two years before and three years after the ownership change and for which observationally similar control plants exist. The results indicate that divestment is associated with a drop in total factor productivity accompanied by a decline in output, markups, as well as export and import intensities. The findings are consistent with the benefits of foreign ownership being driven by continuous supply of headquarter services from the foreign parent.

Suggested Citation

  • Beata Javorcik & Steven Poelhekke, 2017. "Former Foreign Affiliates: Cast Out and Outperformed?," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 501-539.
  • Handle: RePEc:oup:jeurec:v:15:y:2017:i:3:p:501-539.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvw010
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Arlan Brucal, Inessa Love, Beata Javorcik, 2018. "Energy savings through foreign acquisitions? Evidence from Indonesian manufacturing plants," GRI Working Papers 289, Grantham Research Institute on Climate Change and the Environment.
    2. ITO Yukiko, 2015. "Are There Trade-offs between the Existing and New Foreign Activities?," Discussion papers 15101, Research Institute of Economy, Trade and Industry (RIETI).
    3. Paul Pelzl & Steven (S.) Poelhekke, 2018. "Good mine, bad mine: Natural resource heterogeneity and Dutch disease in Indonesia," Tinbergen Institute Discussion Papers 18-073/VIII, Tinbergen Institute.
    4. Fabrice Defever & Alejandro Riano, 2017. "Twin peaks," Discussion Papers 2017-15, University of Nottingham, GEP.
    5. Gidehag, Anton & Lodefalk, Magnus, 2016. "Recruiting for Small Business Growth: Micro-level Evidence," Working Papers 2016:6, Örebro University, School of Business.
    6. repec:eee:indorg:v:63:y:2019:i:c:p:583-614 is not listed on IDEAS
    7. Haucap, Justus & Rasch, Alexander & Stiebale, Joel, 2019. "How mergers affect innovation: Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 283-325.
    8. repec:eee:inecon:v:112:y:2018:i:c:p:70-87 is not listed on IDEAS
    9. García-Vega, María & Hofmann, Patricia & Kneller, Richard, 2019. "Multinationals and the globalization of R&D," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 583-614.
    10. Brucal, Arlan & Javorcik, Beata & Love, Inessa, 2019. "Good for the environment, good for business: foreign acquisitions and energy intensity," LSE Research Online Documents on Economics 101090, London School of Economics and Political Science, LSE Library.
    11. Bruno Merlevede & Victoria Purice, 2019. "Border Regimes And Indirect Productivity Effects From Foreign Direct Investment," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/965, Ghent University, Faculty of Economics and Business Administration.
    12. Christa N. Brunnschweiler & Steven Poelhekke, 2019. "Pushing One's Luck: Petroleum ownership and discoveries," University of East Anglia School of Economics Working Paper Series 2019-01, School of Economics, University of East Anglia, Norwich, UK..
    13. repec:pal:jintbs:v:50:y:2019:i:6:d:10.1057_s41267-019-00248-2 is not listed on IDEAS

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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