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The Impact of FDI on Innovation in Target Firms

  • Joel Stiebale

    ()

  • Frank Reize

This paper contributes to the ongoing debate on the welfare effects of foreign direct investment by investigating the effects of cross-border mergers and acquisitions on innovation activities in target firms. The empirical analysis is based on survey and ownership data for a large sample of small- and mediumsized German firms. After controlling for endogeneity and selection bias, it is found that foreign takeovers have a large negative impact on the propensity to perform innovation activities and a negative impact on average R&D expenditures in innovative firms. Furthermore, innovation output, measured as the share of sales from product innovations is not significantly affected by a foreign takeover for a given amount of innovation efforts. Hence, the estimation results do not show any evidence of significant technology spillovers through foreign direct investment in form of a higher innovation success.

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File URL: http://repec.rwi-essen.de/files/REP_08_050.pdf
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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0050.

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Length: 37 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:rwi:repape:0050
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  1. Zvi Griliches, 1998. "R&D and Productivity: The Econometric Evidence," NBER Books, National Bureau of Economic Research, Inc, number gril98-1, June.
  2. Martin Falk & Rahel Falk, 2006. "Do Foreign-Owned Firms Have a Lower Innovation Intensity Than Domestic Firms?," WIFO Working Papers 275, WIFO.
  3. Blanc, Helene & Sierra, Christophe, 1999. "The Internationalisation of R&D by Multinationals: A Trade-off between External and Internal Proximity," Cambridge Journal of Economics, Oxford University Press, vol. 23(2), pages 187-206, March.
  4. Griffith, Rachel & Redding, Stephen J. & Simpson, Helen, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," CEPR Discussion Papers 4691, C.E.P.R. Discussion Papers.
  5. Atanu Saha & Oral Capps & Patrick Byrne, 1997. "Calculating marginal effects in models for zero expenditures in household budgets using a Heckman-type correction," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1311-1316.
  6. Richard Harris & Catherine Robinson, 2003. "Foreign Ownership and Productivity in the United Kingdom Estimates for U.K. Manufacturing Using the ARD," Review of Industrial Organization, Springer, vol. 22(3), pages 207-223, May.
  7. Reize, Frank, 2001. "FIML estimation of a bivariate probit selection rule: an application on firm growth and subsidisation," ZEW Discussion Papers 01-13, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Greene, W.H., 1996. "Marginal Effects in the Bivariate Probit Model," Working Papers 96-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  9. Sadowski, B.M. & Beers van, C., 2002. "The Innovation Performance of Foreign Affiliates: Evidence from Dutch Manufacturing Firms," Working Papers 02.17, Eindhoven Center for Innovation Studies.
  10. Janz, Norbert & Lööf, Hans & Peters, Bettina, 2004. "Firm Level Innovation and Productivity - Is there a Common Story Across Countries?," Working Paper Series in Economics and Institutions of Innovation 24, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  11. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  12. Goux, Dominique & Maurin, Eric, 2000. "Returns to firm-provided training: evidence from French worker-firm matched data1," Labour Economics, Elsevier, vol. 7(1), pages 1-19, January.
  13. Jozef Konings & Alan Patrick Murphy, 2006. "Do Multinational Enterprises Relocate Employment to Low-Wage Regions? Evidence from European Multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 267-286, July.
  14. Ebling, Günther & Janz, Norbert, 1999. "Export and innovation activities in the German service sector: empirical evidence at the firm level," ZEW Discussion Papers 99-53, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  15. Ebersberger, Bernd & Johansson, Börje & Lööf, Hans, 2006. "Does Ownership Matter? The Impact of Foreign Takeovers on Innovation and Productivity Performance," Working Paper Series in Economics and Institutions of Innovation 69, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
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