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Foreign ownership and productivity: new evidence from the service sector and the R&D lab

Author

Listed:
  • Rachel Griffith

    (Institute for Fiscal Studies and University of Manchester)

  • Stephen Redding

    (Institute for Fiscal Studies and University College London)

  • Helen Simpson

    (Institute for Fiscal Studies and CMPO, Bristol)

Abstract

This paper examines the relationship between foreign ownership and productivity, paying particular attention to two issues neglected in the existing literature ? the role of multinationals in service sectors and the importance of R&D activity conducted by foreign multinationals. We review existing theoretical and empirical work, which largely focuses on manufacturing, before presenting new evidence using establishmentlevel data on production, service and R&D activity for the United Kingdom. We find that multinationals play an important role in service sectors and that entry of foreign multinationals by takeover is more prevalent than greenfield investment. We find that British multinationals have lower levels of labour productivity than foreign multinationals, but the difference is less stark in the service sector than in the production sector, and that British multinationals have lower levels of investment and intermediate use per employee. We also find that foreign-owned multinationals conduct a substantial amount of UK R&D. We discuss the implications of these and other findings for the policy debate on incentives to influence multinational firms' location choices.

Suggested Citation

  • Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign ownership and productivity: new evidence from the service sector and the R&D lab," IFS Working Papers W04/22, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:04/22
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    More about this item

    Keywords

    Foreign Investment; Productivity; Knowledge Spillovers;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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