What is a Foreign Firm?: Implications for Productivity Spillovers

Publikation: Working paperForskning

Resumé

When searching for productivity spillovers from foreign firms, a firm is typically classified as foreign using a low threshold of direct foreign ownership. Instead, we advocate an ‘ultimate owner’ definition because (i) ultimate ownership includes indirect ownership links that are prevalent in our complex, interdependent world; and (ii) it confers control. Control brings greater willingness to transfer knowledge to foreign affiliates but, paradoxically, also greater potential for spillovers. Adopting this alternate definition of what is foreign turns out to be pivotal for identifying spillovers: while we find no horizontal productivity effects using the low threshold direct ownership definition, we find positive and significant effects under the ultimate-owner definition. Moreover, we find evidence that indirectly controlled foreign firms exert the most persistent horizontal spillovers to domestic firms.
When searching for productivity spillovers from foreign firms, a firm is typically classified as foreign using a low threshold of direct foreign ownership. Instead, we advocate an ‘ultimate owner’ definition because (i) ultimate ownership includes indirect ownership links that are prevalent in our complex, interdependent world; and (ii) it confers control. Control brings greater willingness to transfer knowledge to foreign affiliates but, paradoxically, also greater potential for spillovers. Adopting this alternate definition of what is foreign turns out to be pivotal for identifying spillovers: while we find no horizontal productivity effects using the low threshold direct ownership definition, we find positive and significant effects under the ultimate-owner definition. Moreover, we find evidence that indirectly controlled foreign firms exert the most persistent horizontal spillovers to domestic firms.
SprogEngelsk
Udgivelses stedMunich
UdgiverIFO Institute, Center for Economic Studies (CES)
Antal sider45
StatusUdgivet - jun. 2018
NavnCESifo Working Paper
Nummer7109
ISSN2364-1428

Emneord

  • Foreign direct investment
  • Direct vs. ultimate owner
  • Indirect ownership links
  • Control vs. influence
  • Productivity spillovers

Citer dette

McGaughey, S. L., Raimondos, P., & la Cour, L. (2018). What is a Foreign Firm? Implications for Productivity Spillovers. Munich: IFO Institute, Center for Economic Studies (CES). CESifo Working Paper, Nr. 7109
McGaughey, Sara L. ; Raimondos, Pascalis ; la Cour, Lisbeth. / What is a Foreign Firm? Implications for Productivity Spillovers. Munich : IFO Institute, Center for Economic Studies (CES), 2018. (CESifo Working Paper; Nr. 7109).
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McGaughey, SL, Raimondos, P & la Cour, L 2018 'What is a Foreign Firm? Implications for Productivity Spillovers' IFO Institute, Center for Economic Studies (CES), Munich.

What is a Foreign Firm? Implications for Productivity Spillovers. / McGaughey, Sara L.; Raimondos, Pascalis; la Cour, Lisbeth.

Munich : IFO Institute, Center for Economic Studies (CES), 2018.

Publikation: Working paperForskning

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N2 - When searching for productivity spillovers from foreign firms, a firm is typically classified as foreign using a low threshold of direct foreign ownership. Instead, we advocate an ‘ultimate owner’ definition because (i) ultimate ownership includes indirect ownership links that are prevalent in our complex, interdependent world; and (ii) it confers control. Control brings greater willingness to transfer knowledge to foreign affiliates but, paradoxically, also greater potential for spillovers. Adopting this alternate definition of what is foreign turns out to be pivotal for identifying spillovers: while we find no horizontal productivity effects using the low threshold direct ownership definition, we find positive and significant effects under the ultimate-owner definition. Moreover, we find evidence that indirectly controlled foreign firms exert the most persistent horizontal spillovers to domestic firms.

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McGaughey SL, Raimondos P, la Cour L. What is a Foreign Firm? Implications for Productivity Spillovers. Munich: IFO Institute, Center for Economic Studies (CES). 2018 jun.