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Foreign Ownership and Skill-biased Technological Change

Author

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  • Michael Koch

    (University of Bayreuth, Germany)

  • Marcel Smolka

    () (Department of Economics and Business Economics, Aarhus University, Denmark)

Abstract

Understanding the effects of foreign direct investment and the behavior of multinational enterprises (MNEs) is a core issue in the study of international economics. We exploit within-firm variation in ownership structure induced by foreign acquisitions in Spain to provide a new angle on the relationship among foreign ownership, technology, and skills. We first develop a model in which heterogeneous firms decide endogenously about the level of technology, the share of high-skilled workers, and the level of worker training. Foreign-owned firms implement better technology than domestically owned firms due to access to foreign markets through the foreign parent. This market size effect, coupled with a technology-skill complementarity, raises the demand for high-skilled workers as well as worker training upon acquisition. The largest productivity gains predicted by the model accrue to those firms that optimally combine better technology with a larger share of high-skilled workers in production and a better trained workforce. We test these predictions on a longitudinal data set of Spanish manufacturing firms. Combining firm fixed effects with a suitable propensity score weighting estimator, we find empirical evidence that foreign-acquired firms, not only increase their technology level, but also engage in skill upgrading upon acquisition (through both hiring and training). Moreover, we show that these changes are driven by the market size effect, and not by changes in the ownership structure per se. Finally, we reveal a technology-skill complementarity in the data implying that the productivity gains associated with better technology are magnified for firms actively engaging in skill upgrading. Overall, our paper provides strong evidence for the notion that foreign MNEs "inject" skill-biased technological change into their affiliated firms.

Suggested Citation

  • Michael Koch & Marcel Smolka, 2017. "Foreign Ownership and Skill-biased Technological Change," Economics Working Papers 2017-04, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2017-04
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    More about this item

    Keywords

    Multinational Enterprises; Mergers and Acquisitions; Skill-biased Technological Change; Worker Training Productivity;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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