Firms' Technological Trajectories and the Creation of Foreign Subsidiaries

Multinational firms are traditionally considered as firms possessing some technological lead and which are exploiting this proprietary advantage in international markets, but a growing literature has been arguing that multinational firms set up foreign subsidiaries not only as a means to exploit their own technology but also to enrich it. This paper provides some empirical evidence for this. The aim of the paper is to assess the effects of the creation of foreign subsidiaries on firms' technological trajectories.The idea is that by setting up subsidiaries in foreign countries, multinational firms can achieve some form of reverse technology transfer that can be expected to affect their technological trajectories.The empirical investigation uses data from 1992 to 1996 for a sample of 2185 Italian manufacturing firms. Results support the view that the creation of manufacturing subsidiaries has a positive impact on firms' productivity trajectories and this positive impact is greater when subsidiaries are created in regions where knowledge spillovers are expected to be relatively higher, such as the US.     

Trade Intermediation and the Organization of Exporters

Empirical papers show that successful exporting firms either use unaffiliated foreign trade intermediaries or own foreign wholesale subsidiaries. However, conventional trade theory models assume that producers can directly access foreign consumers. We introduce intermediaries in an international trade model where producers differ with respect to productivity as well as regarding their varieties' perceived quality and tradability. Trade intermediation is prone to frictions owing to the absence of enforceable cross‐country contracts while own wholesale subsidiaries require additional capital investment. The sorting pattern of firms depends on their degree of competitive advantage; the equilibrium prevalence of intermediation in the industry depends negatively on the heterogeneity among producers, and the market‐specificity of goods, and positively on expropriation risk. Using sectoral US export data by destination country, we confirm the empirical validity of these predictions.     

Who Benefits from Foreign Direct Investment in the UK?

The presumed higher productivity of foreign firms and resulting spillovers to domestic firms has led governments to offer financial incentives to foreign firms. We investigate if there is any productivity or wage gap between foreign and domestic firms in the UK and if the presence of foreign firms in a sector raises the productivity of domestic firms. Our results indicate that foreign firms do have higher productivity than domestic firms and they pay higher wages. We find no aggregate evidence of intra‐industry spillovers. However, firms with low productivity relative to the sector average, in low‐skill low foreign competition sectors gain less from foreign firms.     

The Motives for Joint Ventures: A Transaction Costs Analysis of Japanese MNES in the UK

What factors determine the choice of Japanese companies between part and full ownership of their UK subsidiaries? In seeking to answer this question, this study employs data of Japanese foreign direct investment (FDI), through joint ventures, in the UK, not previously used. The main findings of the econometric work presented is that transaction costs are the principal consideration when Japanese firms choose between part and full ownership of their UK subsidiaries{softhyphen}. Variables that have featured prominently in studies relating to either US parents or for subsidiaries in the US do not appear to play a significant role. The European Union (EU) market appears to be the target of Japanese foreign direct investment in the UK.     

Taxation and Capital Structure Choice: The Role of Ownership

Applying firm fixed‐effects estimations to European firm‐level data, I analyze how ownership structure affects the relationship between taxation and capital structure. I find that an increase in the corporate tax rate affects the debt‐to‐assets ratio positively, and that this effect is stronger for firms with concentrated ownership. These results hold independently of whether firms are standalone or subsidiaries, and are also valid if subsidiaries are divided into those that are foreign‐owned and those domestically owned. Lastly, ownership plays a role even when controlling for other potentially important determinants of the relation between corporate taxation and capital structure.     

Foreign ownership wage premia in emerging economies

In this article we examine the relationship between wages, labour productivity and ownership using a linked employer–employee dataset covering a large fraction of the Czech labour market in 2006. We distinguish between different origins of ownership and study wage and productivity differences. The raw wage differential between foreign and domestically‐owned firms is about 23 percent. The empirical analysis is carried out on both firm‐ and individual‐level data. A key finding is that industry, region and notably human capital explain only a small part of the foreign–domestic ownership wage differential. Both white and blue collar workers as well as skilled and unskilled employees obtain a foreign ownership wage premium. Foreign ownership premia are more prevalent in older and less technologically advanced firms. Joint estimation of productivity and wage equations show that, controlling for human capital, the difference in productivity is about twice as large as the wage differential. Overall, results indicate that the international firms share their rents with their employees.     

Foreign subsidiaries as a channel of international technology diffusion: Some direct firm level evidence from Belgium

The use of foreign direct investment as a channel of international spillovers is by now fairly established in the empirical literature on innovation and growth. It is often argued that subsidiaries of foreign multinational enterprises are a mechanism through which technological know-how flows across borders. For foreign subsidiaries to be channels of international spillovers, these subsidiaries need to source know-how internationally and transfer their know-how to the local economy. Using direct firm level evidence from the Belgian Community Innovation Survey on the occurrence of technology transfers, we find that foreign subsidiaries are indeed more likely to acquire technology internationally. But after controlling for the superior access to the international technology market that foreign subsidiaries enjoy, we find that these firms are not more likely to transfer technology to the local economy as compared to local firms.     

Exports versus FDI in German Manufacturing: Firm Performance and Participation in International Markets

Recent theoretical work has been able to explain how even within narrowly defined industries, firms can exhibit heterogeneous degrees of participation in international commerce. Differences in productivity between firms are the principal explanation offered by theory to explain heterogeneity with respect to international commerce. In particular, theory predicts that the least productive firms will produce for the domestic market only, while better performers engage in export activities, and the top firms establish foreign subsidiaries. This paper presents an empirical test of the relationship between productivity and patterns of international trade and production. Using German firm‐level data from 1996 to 2002, we test the predicted rank ordering of productivity according to firms’ trade pattern by examining the distribution functions of the three subsets of firms for stochastic dominance. Our results are generally consistent with the predictions from theory, and document significant productivity differences according to trade patterns.     

Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data

The paper presents an empirical analysis of “outsourcing” using establishment‐level data for UK manufacturing industries. The authors analyze an establishment's decision to outsource and the subsequent effects of outsourcing on the establishment's productivity. Outsourcing is compared in domestic with foreign‐owned establishments. The empirical results suggest that high wages are positively related to outsourcing, suggesting that the cost‐saving motive is important. Foreign‐owned firms have higher levels of outsourcing than domestic establishments. In the productivity analysis, an establishment's outsourcing intensity is positively related to its labor productivity and total factor productivity growth, and this effect is more pronounced for foreign establishments.     

融资约束视角下的运营资本对中国企业全要素生产率的贡献*

金融危机后中国经济增长缓慢，产业和总需求分析框架失灵。本文从供给侧动力和非正规金融入手，研究中国企业全要素生产率与运营资本的关系。本文利用1999—2013年非上市企业的动态面板数据，采用系统GMM的方法进行回归分析，研究发现运营资本对中国企业的全要素生产率有显著的影响，而且这种影响是非线性的。但是，这种关系只在民营企业和外资企业中成立，对国有企业并不成立。本文进一步引入融资约束机制，论证了运营资本是中国非国有企业突破融资困境、促进企业全要素生产率提高的重要金融中介。       

Market Size and the Survival of Foreign‐owned Firms*

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.     

Intra‐industry Knowledge Spillovers from Foreign Direct Investment in Research and Development: Evidence from China's “Silicon Valley”

This study examines a specific channel of technology diffusion from multinational enterprises to domestic firms in less developed regions: research and development (R&D) activities of multinational enterprises in the host country. Using firm‐level panel data from a Chinese science park, known as China's “Silicon Valley,” we find that the R&D stock of foreign‐owned firms has a positive effect on the productivity of domestic firms in the same industry, while the capital stock of foreign firms has no such effect. These results suggest that foreign firms' knowledge spills over within industries through their R&D activities, but not through their production activities. In addition, we find no evidence of spillovers from domestic firms or firms from Hong Kong, Macao, or Taiwan, suggesting that the size of knowledge spillovers is larger when the technology gap between source and recipient firms is larger.     

Does foreign ownership matter?

The paper both compares productivity of Russian firms that have foreign direct investments with productivity of fully domestically owned firms and analyses spillovers from foreign‐owned firms to domestic firms. Foreign firms are found to be more productive than domestic ones, but productivity of the former is negatively affected by slow progress of reforms in the regions where they operate. It is also found that there are positive spillovers from foreign‐owned firms to domestic firms in the same industry, but negative effects on domestic firms that are vertically related to foreign‐owned firms. The stock of human capital in regions where foreign firms operate is one of the factors which help domestic firms to benefit from the entry of foreign firms.     

MARKET ACCESS,INVESTMENT, AND HETEROGENEOUS FIRMS*

This article presents a model of international trade in which heterogeneous firms can expand through capital acquisitions. I show that demand elasticities are a crucial element in predicting which firms invest, in what location, and for what reason. High‐productivity firms, who tend to sell goods at a low elasticity, invest for market access (tariff jumping). Middle productivity firms, who tend to sell at a higher elasticity, invest for productivity improvement. The relative value of trade costs dictates which incentive is larger. In equilibrium, trade liberalization can reduce aggregate productivity by reducing an important source of investment demand: foreign firms.     

Does ownership affect firms’ efficiency? Panel data evidence on Italy

This paper provides empirical evidence on the relation between the identity of ultimate owners and technical (in)efficiency by estimating stochastic production frontiers on Italian firm level panel data for twelve manufacturing industries over the 1978–93 period. Privately-owned independent firms are used as reference group and their efficiency is assessed against three alternative forms of ownership: subsidiaries of (privately owned) national business groups, subsidiaries of foreign multinationals, and state owned firms. Even if cross-industry differences obviously exist a common pattern can however be identified. Overall, subsidiaries of foreign multinationals (state owned firms) are found to be more (less) efficient than the reference group. On the contrary, no systematic difference is found between independent firms and subsidiaries of national business groups.First version received: July 2002/Final version received: September 2003We wish to thank the Editor Robert Kunst, a very constructive Referee, Luigi Benfratello, Maurizio Conti, Almas Heshmati, Giovanna Nicodano and the participants at the EARIE conference in Lausanne for helpful comments on a previous draft.     

MNEs and wages: The role of productivity spillovers and imperfect labor markets

Disentangling the labor market implications of increased foreign capital flows remains important. This paper provides a unifying framework allowing to study the wage implications of multinational enterprise (MNE) activities, pointing to the importance of controlling for both labor market imperfections and productivity spillovers from foreign to local firms. Results show that increased MNE activities increase average wages in the local economy while contributing to a larger wage dispersion between the MNE and local firms. While the results pertaining to average wages depends heavily on the frictions in the labor market, how much the wage dispersion alters also depends on the extent of productivity spillovers from the MNEs to the local firms and the complementarity between domestic and foreign capital.     

Board gender quotas and outward foreign direct investment: Evidence from France

We show that board gender quota laws reduce the propensity of French firms to undertake outward foreign direct investment. For this, we use firm-level data for the period 2007 to 2015 and a difference-in-difference approach. The exogenous increase in the share of women directors decreases the share of foreign subsidiaries by 7 percentage points when the share of women directors is at its highest. The share of foreign subsidiaries is affected by the decrease in probability of having a foreign subsidiary, which indicates disinvestment. The effects on outward foreign direct investment we detect are strongest for the poorly managed firms, pointing to tough managerial monitoring by gender diverse boards as the driving force behind results.     

WHO GAINS FROM WHOM? SPILLOVERS,COMPETITION AND TECHNOLOGY SOURCING IN THE FOREIGN‐OWNED SECTOR OF UK MANUFACTURING

There is a growing literature explaining foreign direct investment flows in terms of ‘technology sourcing’, whereby multinational firms invest in certain locations not to exploit their firm‐specific assets in the host environment, but to access technology that is generated by host country firms. However, it is far from clear whether the literature has found significant evidence of such activity beyond a few isolated examples. This paper extends this work by allowing for the possibility of multinational enterprises (MNEs) sourcing technology not only from host country firms but also from each other within a host economy. The paper demonstrates that MNEs in the UK do indeed appropriate spillovers both from indigenous firms and from other foreign investors, but that there are also significant competition effects that act to reduce productivity in certain industries. The paper also explores which countries' affiliates gain most from technology sourcing in the UK, and which generate the greatest spillovers within the foreign‐owned sector.     

Indirect Employment Effects of Foreign Direct Investment into the UK

This paper examines some of the employment consequences, broadly defined, associated with foreign inward investment. A foreign firm entering an industry in the UK will have a degree of firm‐specific advantage over the incumbent firms. This advantage is assumed to manifest itself in terms of a productivity differential over the domestic sector. As such, foreign entry will create factor market disequilibrium in the domestic sector. It is shown that such investment generates 'employment substitution' away from UK firms, equivalent to approximately one–fifth of all the jobs created by inward investment.     

Do vertical spillovers differ by investors’ productivity? Theory and evidence from Vietnam

Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm‐level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affect the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low‐, middle‐, and high‐productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity‐enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.