DP5841 Multinationals' Productivity Advantage: Scale or Technology

Author(s): Sourafel Girma, Holger Görg
Publication Date: September 2006
Keyword(s): acquisitions, multinational enterprises, productivity, scale, technical efficiency
JEL(s): F23, L22
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5841

The first aim of this paper is to decompose the productivity advantage of foreign multinationals into two components: the technology and scale effect. The second aim is to analyse the causal relationship between foreign ownership and these two components of productivity growth. We do so by analyzing the effects of an acquisition of a domestic establishment by a foreign multinational enterprise, using a combined propensity score matching and difference-in-differences estimation. Our empirical analysis is based on plant level data for the UK. From our econometric investigation four broad patterns emerge: (i) any positive impact of ownership change is predominantly due to change in technical efficiency, not scale effects (ii) the pre-acquisition TFP level of the erstwhile domestic plants play a role - positive or negative - in mediating the rate of technology transfer from the MNE parent companies, (iii) the productivity growth effects are not confined to the year of acquisition, and tend to persist through time.