DP8141 Innovation and Foreign Ownership

Author(s): Maria Guadalupe, Olga Kuzmina, Catherine Thomas
Publication Date: December 2010
Keyword(s): Foreign Ownership, Innovation, Multinational Production, Productivity
JEL(s): D22, F23, O31
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8141

This paper uses a rich panel dataset of Spanish manufacturing firms (1990-2006) and a propensity score reweighting estimator to show that multinational firms acquire the most productive domestic firms, which, on acquisition, conduct more product and process innovation (simultaneously adopting new machines and organizational practices) and adopt foreign technologies, leading to higher productivity. We propose a model of endogenous selection and innovation in heterogeneous firms that jointly explains the observed selection process and the innovation decisions. Further, we show in the data that innovation on acquisition is associated with the increased market scale provided by the parent firm.