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Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case of Japanese firms

  • ITO Keiko

This paper examines whether and how the entry of foreign multinational firms affects productivity growth of domestically owned firms, using Japanese firm-level data for the period 2000-2007. Although there are a considerable number of studies conducting productivity analyses on foreign multinationals and domestic firms for the manufacturing sector, there are few such studies for the service sector. Against this background, the present paper focuses on the role of foreign entry in the service sector, where cross-border trade is often difficult and firms are therefore less likely to be exposed to international competition. The results of the analysis suggest that foreign multinationals perform better than domestically owned firms in many sectors. However, although the productivity levels of the former tend to be higher than those of the latter, no significant difference in productivity growth rates is found. Moreover, once firm-fixed effects are controlled for, foreign presence in a particular industry tends to negatively affect the productivity growth rate of domestically owned firms in the industry. However, firms that are catching up with the productivity frontier enjoy positive FDI spillovers, implying that foreign entry accelerates productivity catch-up.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11063.

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Length: 36 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:eti:dpaper:11063
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  1. Sourafel Girma, 2003. "Absorptive capacity and productivity spillovers From FDI: a threshold regression analysis," European Economy Group Working Papers 25, European Economy Group.
  2. Jochen Hartwig, 2008. "Productivity Growth In Service Industries: Are The Transatlantic Differences Measurement-Driven?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(3), pages 494-505, 09.
  3. Fukao, Kyoji & Ito, Keiko & Kwon, Hyeog Ug & Takizawa, Miho, 2007. "Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data," CEI Working Paper Series 2006-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  4. MORIKAWA Masayuki, 2007. "What Kinds of Company Have High Productivity? Company Characteristics and TFP (Japanese)," Discussion Papers (Japanese) 07049, Research Institute of Economy, Trade and Industry (RIETI).
  5. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  6. repec:dgr:rugggd:gd-104 is not listed on IDEAS
  7. Maurice Kugler, . "Spillovers from Foreign Direct Investment: Within or between Industries?," Borradores de Economia 369, Banco de la Republica de Colombia.
  8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  9. Haskel, Jonathan & Pereira, Sonia & Slaughter, Matthew, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," CEPR Discussion Papers 3384, C.E.P.R. Discussion Papers.
  10. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
  11. Kyoji Fukao & Keiko Ito & Hyeog Ug Kwon, 2005. "Do Out-In M&As Bring Higher TFP to Japan? An Empirical Analysis Based on Micro-data on Japanese Manufacturing Firms," Discussion papers 05005, Research Institute of Economy, Trade and Industry (RIETI).
  12. Barrios, Salvador & Görg, Holger & Strobl, Eric, 2011. "Spillovers through backward linkages from multinationals: Measurement matters!," European Economic Review, Elsevier, vol. 55(6), pages 862-875, August.
  13. Arnold, Jens & Javorcik, Beata S. & Mattoo, Aaditya, 2007. "Does services liberalization benefit manufacturing firms ? Evidence from the Czech Republic," Policy Research Working Paper Series 4109, The World Bank.
  14. Todo, Yasuyuki, 2006. "Knowledge spillovers from foreign direct investment in R&D: Evidence from Japanese firm-level data," Journal of Asian Economics, Elsevier, vol. 17(6), pages 996-1013, December.
  15. MORIKAWA Masayuki, 2008. "How to Enhance the Productivity of Service Industries: Suggestions from recent studies and agenda for future research (Japanese)," Discussion Papers (Japanese) 08031, Research Institute of Economy, Trade and Industry (RIETI).
  16. Javorcik, Beata S. & Saggi, Kamal & Spatareanu, Mariana, 2004. "Does it matter where you come from? vertical spillovers from foreign direct investment and the nationality of investors," Policy Research Working Paper Series 3449, The World Bank.
  17. Ito, Keiko & Fukao, Kyoji, 2003. "Foreign Direct Investment and Trade in Japan: An Empirical Analysis Based on the Establishment and Enterprise Census for 1996," Discussion Paper Series a441, Institute of Economic Research, Hitotsubashi University.
  18. Priit Vahter, 2010. "Does FDI spur innovation, productivity and knowledge sourcing by incumbent firms? Evidence from manufacturing industry in Estonia," William Davidson Institute Working Papers Series wp986, William Davidson Institute at the University of Michigan.
  19. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June.
  20. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
  21. Fukunari Kimura & Kozo Kiyota, 2007. "Foreign-owned versus Domestically-owned Firms: Economic Performance in Japan," Review of Development Economics, Wiley Blackwell, vol. 11(1), pages 31-48, 02.
  22. MORIKAWA Masayuki, 2007. "Is Productivity in the Service Industries Low? An Analysis Using Firm-level Data on the Dispersion and the Dynamics of Productivity (Japanese)," Discussion Papers (Japanese) 07048, Research Institute of Economy, Trade and Industry (RIETI).
  23. Robert Inklaar & Marcel P. Timmer & Bart van Ark, 2008. "Data for Productivity Measurement in Market Services: An International Comparison," International Productivity Monitor, Centre for the Study of Living Standards, vol. 16, pages 72-81, Spring.
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