How Domestic and Foreign Firms Differ and Why Does it Matter?

32 Pages Posted: 23 Sep 2004

See all articles by Christian Bellak

Christian Bellak

WU, Vienna University of Economics and BA


This paper reviews and summarises the results of selected studies on performance gaps between multinational enterprises and their domestic counterparts. Performance gaps arise in such fields as productivity, technology, profitability, wages, skills and growth. While these gaps are often attributed to foreign ownership of the affiliates, the theory of the Multinational Enterprise argues that these gaps are due to being a Multinational rather than the nationality of the firm. Empirical evidence on the existence of performance gaps between foreign and domestic firms is supportive of this view: foreign ownership turns out to be a much less important explanatory factor than normally assumed. Firm-specific assets and firm characteristics like industry, size, parent country and multinationality are more important. Such results are broadly consistent with those derived in the literatures on ownership change, on foreign entry and on spillovers. We conclude that there is little case for foreign direct investment promotion policies to discriminate between firms on the basis of ownership.

Suggested Citation

Bellak, Christian, How Domestic and Foreign Firms Differ and Why Does it Matter?. Available at SSRN:

Christian Bellak (Contact Author)

WU, Vienna University of Economics and BA ( email )

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