Firms’ technological trajectories and the creation of foreign subsidiaries

Multinational firms are traditionally considered as firms possessing some technological lead and 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 in this line of analysis. The aim of the paper is to assess the effects of the creation of foreign subsidiaries on firm’s technological trajectory. The idea is that by setting up subsidiaries in foreign countries multinational firms can achieve some form of reverse technology transfer which can be expected to affect their technological trajectory. The empirical investigation has been carried out using data from 1992 to 1996 on a sample of 1,814 Italian manufacturing firms. Results support the view that the creation of manufacturing subsidiaries have a positive impact on firm’s productivity trajectory and, more interestingly, this positive impact is greater when subsidiaries are created in regions where knowledge spillovers are expected to be relatively higher, such as the U.Sforeign direct investments, total factor productivity, dynamic panel data

Productivity and the international firm: dissecting heterogeneity

Firms in competitive markets are more likely achieve higher productivity. Indeed a better performance of multinationals and exporters with respect to domestic firms has been documented in the literature. The sources of these premia have however largely remained a black box: standard theoretical models consider differences in productivity as the results of a random draw. Only recently models have acknowledged that in competitive environments, firms are more likely to adopt new technologies. This theoretical framework reconciles recent empirical work noting that productivity differences among firms can be explained by different managerial practices, I.T. and organizational capital. In this paper, using an original dataset on Italian firms, we show that the higher use of knowledge workers (such as R&D workers, as well as workers in managerial and clerical occupations) explains some of the TFP premium of exporters and multinational firms. Our results suggest that TFP differences are not only the results in different constant in the production function between international and noninternational firms, but they rather reflect differences in the slopes of the production function. In fact, allowing for different returns to inputs between domestic and international firms, we explain all of the productivity premium and beyond. This is the result of the fact that multinational firms are both more capital intensive and exhibit higher returns to capital. Furthermore, we find that managers and capital are complements in the productivity of multinational firms. This is consistent with the idea that multinational firms have superior organizational capabilities and managerial practices.productivity, tfp, competition, management, mode of internationalization

Location Choices of Multinational Firms in Europe: the Role of National Bourdaries and EU Policy

We examine the determinants of multinational firms’ location choices in Europe by estimating a nested logit model on a data-set of 5,761 foreign subsidiaries established in 55 regions in 8 EU countries over the period 1991-1999. We find that firms perceive regions across different countries as more similar than regions within national borders. This might be revealing that the process of European integration has reduced the national specificities perceived by multinationals and that regions within Europe attract FDIs more across than within countries. Controlling for regional market size and potential, agglomeration economies and labor markets conditions, we also find that EU regional policy, captured by Cohesion Funds and Objective 1 eligibility, played a significant role in attracting multinationals, thus mitigating the agglomeration forces at work. Differences emerge in determinants of EU and US multinationals location choices, with special reference to the role of labor markets.Europe, Foreign Direct Investments; Location; Nested Logit Models

Foreign Investments and Productivity Evidence from European Regions

Differences in productivity across regions have been mainly attributed to agglomeration economies, technology and human capital, while almost no evidence has been provided on the role of internationalization. In this paper we build unique measures of outward and inward foreign direct investment (FDI) counts at the NUTS 2 level and we assess the relationship between regional productivity and foreign investments in Europe. Regions with larger outflows of foreign investments show higher productivity growth, but this correlation fades down with the number of investments and eventually becomes negative in regions with very high outward orientation. Inward investments are also positively associated with regional productivity growth, but only above a certain threshold. Results are robust to the introduction of a number of regional characteristics, to the control for endogeneity of foreign investments, and for spatial dependence.Regional productivity, foreign investments, Europe, spatial econometric models, instrumental variables.

Productivity Gaps, Inward Investments and Productivity of European firms

Using a balanced panel of firm-level data on the manufacturing industry in France, Italy and Spain over the 1993-1997 period, this paper examines the impact of foreign presence on the productivity of domestic enterprises. We innovate on existing literature by using firm-level data comparable across countries. A generalisation of the results obtained for individual countries is attempted by introducing two key variables in the analysis of the impact of inward investments on domestic performances: productivity gaps between foreign and domestic firms, and productivity levels of MNEs. It is shown that it is the combination of high gaps and high levels of foreign productivity that has the most positive effects. This leads to a critical consideration of both the “catching up” hypothesis, which identifies a positive relation between the size of technological gaps and growth opportunities induced by foreign investments; and the “technological accumulation” hypothesis, which stresses the role of domestic absorptive capacity and of coherence between foreign and domestic technology as determinants of virtuous effects of inward investments. Based on these results, policy implications are drawn, concerning the selection and promotion of inward investments in advanced countries.Multinationals, Technology Gap, Productivity

Investments Abroad and Performance at Home Evidence from Italian Multinationals

Foreign activities of MNEs have important effects on home economies. The debate is ambiguous: concerns that foreign investments deplete domestic economies are often coupled with the pride for doing good business in foreign countries. This paper addresses this question by defining the appropriate counterfactual: what would have happened to investing firms if they had not invested abroad. It applies propensity score matching to derive these hypothetical performance trajectories from a sample of national firms which never invested abroad. For a sample of Italian firms, it finds that investments improves growth of total factor productivity and output. It also finds no significant effects on employment. These results support the view that foreign investments strengthen rather than depleting home activities.multinational firms, productivity, propensity score matching

Attracting Foreign Investments in Europe - are Italian Regions Doomed?

Foreign direct investments in Europe have grown substantially over the last decade, but Italian regions account for a very small portion of such increase. Why does Italian regions attract such a low number of foreign investors? Is it a regional or a country problem? One explanation for this pattern could be that the characteristics of Italian regions are not attractive to foreign multinationals. A different, although not alternative, explanation is that Italian regions may be ‘doomed’ by the fact that they all share common national policies and institutions (such as, tax regimes, efficiency of bureaucracy, degree of labour market regulation and effectiveness of the legal and property right protection system) which discourage foreign firms to locate their plants in Italy. This view follows a tradition of cross-country studies which have addressed the role of institutional and policy characteristics as determinants of inward FDIs. In this paper we will model the potential attractiveness of 52 NUTS1 regions in 5 EU countries in terms of their main observable characteristics and will investigate whether Italian regions attract more or less than their potential. In other words, we will ask whether a EU region with the same characteristics of an Italian region will attract a different amount of FDIs. Second, we will evaluate the impact of some national policy and institutional characteristics on the attractiveness of regions and we will assess the role of such factors in explaining the Italian specificity. Third, we will simulate the relative contribution to FDIs in Italian regions of regional and national variables. This exercise will help us assessing to what extent the low attractiveness of Italian regions is the result of specific regional characteristics or of countrywide factors.

Location choices of multinational firms in Europe: the role of national boundaries and EU policy

What determines multinational firms’ location choices in Europe? Do national boundaries matter in location decisions? To what extent are European regional policies (Structural and Cohesion Funds) able to mitigate the agglomeration forces at work? Do location determinants differ for EU and US MNEs? In this paper, we address these questions using data from 5,761 foreign subsidiaries established in 55 regions in 8 EU countries over the period 1991-1999 and estimating a nested logit model of location choices. Controlling for regional market size and potential, agglomeration economies and labor markets conditions, we find that EU policy, proxied by Cohesion Fund and Objective 1 eligibility, played a significant role in attracting multinationals. Differences emerge in determinants of EU and US multinationals location choices, with special reference to the role of labor markets. National boundaries do not seem to affect location decisions, with the relevant exception of Italy. Results suggest that multinational firms’ perceive European regions as geo-economic aggregates different from the actual political boundaries of countries.

Firms in International Trade: Importers and Exporters Heterogeneity in the Italian Manufacturing Industry

This paper offers a portrait of Italian firms that trade goods. Combining data on firms' structural characteristics and economic performance with data on their exporting and importing activity, we uncover evidence supporting recent theories on firm heterogeneity and international trade, together with some new facts. In particular, we find that importing can be as important as exporting as a source of firm heterogeneity. First, we document that trade is more concentrated than employment and sales, and we show that import is even more concentrated than export both within sectors and along the sector and country extensive margins. Second, while supporting the fact that firms involved in both importing and exporting (two-way traders) are the best performers, we also find that firms involved only in importing activities perform better than those involved only in exporting. We submit that this may have to do with being mainly importers of high-tech capital goods. Third, the performance premia of internationalized firms correlate relatively more with the degree of geographical and sectoral diversification of imports.Heterogeneous firms; Exports; Imports

Location Determinants of Greenfield Foreign Investments in the Enlarged Europe: Evidence from a Spatial Autoregressive Negative Binomial Additive Model

This paper addresses two important methodological issues in the analysis of industrial location: spatial dependence and nonlinearities. To this end, we estimate a semi-parametric spatial autoregressive negative binomial model using data on the number of inward greenfield FDI occurred over the 2003-2007 period in 249 European regions. Results support the view that multinational firms’ location choices are very spatially dependent, even controlling for a large number of regional characteristics. A spatial lag model with a non-parametric spatial filter allows us to purge the residuals from spatial dependence and yields sensible changes in the magnitude of some estimated coefficients. We also provide robust evidence of nonlinearities. In particular, we find that the effect of agglomeration economies fades down as the density of economic activities reaches some limit value.Multinational firms, greenfield FDI, count data, spatial econometrics, semiparametric econometrics