DP9434 | Quantifying Productivity Gains from Foreign Investment

Publication Date

21/04/2013

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Abstract

We quantify the effect of foreign investment on productivity of acquired firms using a new firm-level database that tracks foreign ownership changes. To control for endogenous selection on unobserved firm-level characteristics, we study the differential impact of majority and minority foreign ownership; to control for selection on observables, we perform propensity score matching; and to control for selection on unobserved fundamentals, we include country-sector trends. The productivity of affiliates increases modestly four years after foreign acquisition, but only when foreign owners buy majority stakes. Our results highlight the importance of foreign investors having corporate control.