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Quantifying Productivity Gains from Foreign Investment

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Listed:
  • Christian Fons-Rosen
  • Sebnem Kalemli-Ozcan
  • Bent E. Sørensen
  • Carolina Villegas-Sanchez
  • Vadym Volosovych

Abstract

We quantify the effect of foreign investment on productivity of acquired firms using a new firm-level database for eight advanced European countries during 1999-2012. Foreign investors target high productivity firms. In order to control for this selection and isolate causal effects, we perform propensity score matching with firm fixed effects and also control for country-sector trends and mean-reversion in productivity. Following foreign acquisition, productivity increases modestly but only after four years, and only when foreign investors buy majority stakes. Our results are driven by foreign acquisitions and not by foreign divestment. The effect of foreign acquisitions on total factor productivity are an order of magnitude smaller in our sample of advanced countries relative to those found for emerging markets.

Suggested Citation

  • Christian Fons-Rosen & Sebnem Kalemli-Ozcan & Bent E. Sørensen & Carolina Villegas-Sanchez & Vadym Volosovych, 2013. "Quantifying Productivity Gains from Foreign Investment," NBER Working Papers 18920, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18920
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    1. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    2. Mathias M. Siems & Michael C. Schouten, 2009. "The Evolution of Ownership Disclosure Rules across Countries," Working Papers wp393, Centre for Business Research, University of Cambridge.
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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