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Foreign Acquisitions, Domestic Multinationals, and R&D

  • Bandick, Roger
  • Görg, Holger
  • Karpaty, Patrik

The aim of this paper is to evaluate the causal effect of foreign acquisition on R&D intensity in targeted domestic firms. We are able to distinguish domestic multinationals and non-multinationals, which allows us to investigate the fear that the change in ownership of domestic to foreign multinationals leads to a reduction in R&D activity in the country, as headquarter activities are relocated to the new owner’s home country. We use unique and rich firm level data for the Swedish manufacturing sector and different micro-econometric estimation strategies in order to control for the potential endogeneity of the acquisition dummy. Overall, our results give no support to the fears that foreign acquisition of domestic firms lead to a brain drain of R&D activity in Swedish MNEs. Rather, this paper finds robust evidence that foreign acquisitions lead to increasing R&D intensity in acquired domestic MNEs and non-MNEs.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8081.

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Date of creation: Oct 2010
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Handle: RePEc:cpr:ceprdp:8081
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  1. Beata Javorcik & Jens Matthias Arnold, 2009. "Gifted Kids or Pushy Parents? Foreign Direct Investment and Plant Productivity in Indonesia," Economics Series Working Papers 434, University of Oxford, Department of Economics.
  2. Ekholm, Karolina & Hakkala, Katariina, 2004. "Location of R&D and High-Tech Production by Vertically Integrated Multinationals," Working Paper Series 616, Research Institute of Industrial Economics.
  3. Patrik Karpaty, 2006. "Does Multinationality Matter? Evidence from Swedish firm data," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(2), pages 101-122.
  4. Giorgio Barba Navaretti & Davide Castellani & Anne-Célia Disdier, 2006. "How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy," Development Working Papers 215, Centro Studi Luca d\'Agliano, University of Milano.
  5. Blomstrom, Magnus & Fors, Gunnar & Lipsey, Robert E, 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," Economic Journal, Royal Economic Society, vol. 107(445), pages 1787-97, November.
  6. Bertrand, Olivier, 2009. "Effects of foreign acquisitions on R&D activity: Evidence from firm-level data for France," Research Policy, Elsevier, vol. 38(6), pages 1021-1031, July.
  7. Kristiina Huttunen, 2007. "The Effect of Foreign Acquisition on Employment and Wages: Evidence from Finnish Establishments," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 497-509, August.
  8. Stephen Yeaple & Volker Nocke, 2005. "An Assignment Theory of Foreign Direct Investment," 2005 Meeting Papers 146, Society for Economic Dynamics.
  9. James R. Markusen, 1998. "Multinational Firms, Location and Trade," The World Economy, Wiley Blackwell, vol. 21(6), pages 733-756, 08.
  10. V.N. Balasubramanyam, 2008. "Foreign Direct Investment," Chapters, in: International Handbook of Development Economics, Volumes 1 & 2, chapter 39 Edward Elgar.
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