Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab

33 Pages Posted: 22 Dec 2004

See all articles by Rachel Griffith

Rachel Griffith

Institute for Fiscal Studies (IFS); University of Manchester; Centre for Economic Policy Research (CEPR)

Stephen J. Redding

Princeton University

Helen Simpson

CMPO; Institute for Fiscal Studies (IFS)

Date Written: October 2004

Abstract

This Paper examines the relationship between foreign ownership and productivity, paying particular attention to two issues neglected in the existing literature - the role of multinationals in service sectors and the importance of R&D activity conducted by foreign multinationals. We review existing theoretical and empirical work, which largely focuses on manufacturing, before presenting new evidence using establishment-level data on production, service and R&D activity for the United Kingdom. We find that multinationals play an important role in service sectors and that entry of foreign multinationals by takeover is more prevalent than greenfield investment. We find that British multinationals have lower levels of labor productivity than foreign multinationals, but the difference is less stark in the service sector than in the production sector, and that British multinationals have lower levels of investment and intermediate use per employee. We also find that foreign-owned multinationals conduct a substantial amount of UK R&D. We discuss the implications of these and other findings for the policy debate on incentives to influence multinational firms' location choices.

Keywords: Foreign investment, productivity, knowledge spillovers

JEL Classification: F23, L60, L80, O47

Suggested Citation

Griffith, Rachel and Redding, Stephen J. and Simpson, Helen, Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab (October 2004). CEPR Discussion Paper No. 4691. Available at SSRN: https://ssrn.com/abstract=639166

Rachel Griffith (Contact Author)

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)
+44 20 7323 4780 (Fax)

University of Manchester ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

HOME PAGE: http://www.ifs.org.uk/people/profile?id=37

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stephen J. Redding

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

Helen Simpson

CMPO ( email )

University of Bristol
2 Priory Road
Bristol, BS8 ITX
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)
+44 20 7323 4780 (Fax)

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