Innovation and Foreign Ownership
CEPR Discussion Paper No. 8141
43 Pages Posted: 30 Nov 2010
Date Written: November 22, 2010
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.
Keywords: Foreign Ownership, Productivity, Multinational Production, Innovation
JEL Classification: D22, F23, O31
Suggested Citation: Suggested Citation