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Foreign firms and host-country productivity: does the mode of entry matter?

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  • Ragnhild Balsvik
  • Stefanie A. Haller

Abstract

Foreign direct investment is considered an important source of knowledge spillovers. We argue that the effects of foreign presence on host-country productivity may differ depending on the mode of foreign entry. Using a long panel from the Norwegian Manufacturing Census, we find that greenfield entry both in the same industry and in the same labour market region has a negative impact on the productivity of domestic plants, while entry via acquisition affects the productivity of domestic plants in the same industry positively. The positive effect from acquisitions is consistent with knowledge spillovers as these plants have pre-established linkages within the industry. The negative effects from greenfield entry can be attributed to increased competition both in the product market and for qualified employees in a tight labour market. Our results help to explain the ambiguity of results in the empirical literature that relates overall foreign presence to host-country productivity. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

Suggested Citation

  • Ragnhild Balsvik & Stefanie A. Haller, 2011. "Foreign firms and host-country productivity: does the mode of entry matter?," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 158-186, January.
  • Handle: RePEc:oup:oxecpp:v:63:y:2011:i:1:p:158-186
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    File URL: http://hdl.handle.net/10.1093/oep/gpq014
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    Cited by:

    1. Tanaka, Kiyoyasu, 2015. "The impact of foreign firms on industrial productivity : evidence from Japan," IDE Discussion Papers 533, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Shafik Hebous & Martin Ruf & Alfons J. Weichenrieder, 2010. "The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments," CESifo Working Paper Series 3076, CESifo Group Munich.
    3. TOMOHARA Akinori, 2015. "Effectively Opening Labor and Capital Markets: The interplay among foreign direct investment, trade, and immigration," Discussion papers 15079, Research Institute of Economy, Trade and Industry (RIETI).
    4. Joachim Wagner, 2011. "Productivity and International Firm Activities: What do we know?," Working Paper Series in Economics 194, University of L√ľneburg, Institute of Economics.
    5. TANAKA Kiyoyasu, 2015. "The Impact of Foreign Firms on Industrial Productivity: A Bayesian-model averaging approach," Discussion papers 15009, Research Institute of Economy, Trade and Industry (RIETI).
    6. Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 637-651.
    7. Ashraf, Ayesha & Herzer, Dierk & Nunnenkamp, Peter, 2014. "The effects of Greenfield FDI and cross-border M&As on total factor productivity," Kiel Working Papers 1941, Kiel Institute for the World Economy (IfW).
    8. Feld, Lars P. & Ruf, Martin & Scheuering, Uwe & Schreiber, Ulrich & Voget, Johannes, 2016. "Repatriation taxes and outbound M&As," Journal of Public Economics, Elsevier, vol. 139(C), pages 13-27.
    9. Ashraf, Ayesha, 2015. "The Effects of Greenfield FDI and Cross-Border M&As on Government Size," MPRA Paper 65061, University Library of Munich, Germany.
    10. repec:bla:deveco:v:55:y:2017:i:2:p:105-129 is not listed on IDEAS
    11. Desislava Dikova & Keith Brouthers, 2016. "International Establishment Mode Choice: Past, Present and Future," Management International Review, Springer, vol. 56(4), pages 489-530, August.
    12. Hebous, Shafik & Ruf, Martin & Weichenrieder, Alfons J., 2011. "The Effects of Taxation on the Location Decision of Multinational Firms: M&a Versus Greenfield Investments," National Tax Journal, National Tax Association, vol. 64(3), pages 817-838, September.
    13. repec:bla:worlde:v:39:y:2016:i:11:p:1728-1755 is not listed on IDEAS

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