Outward FDI and Productivity: Micro-Evidence from Slovenia

21 Pages Posted: 20 Jan 2007

See all articles by Jože P. Damijan

Jože P. Damijan

University of Ljubljana, Slovenia - Department of International Economics

Saao Polanec

University of Ljubljana - Faculty of Economics

Janez Praanikar

University of Ljubljana - Faculty of Economics

Abstract

This paper uses a rich data set of Slovenian manufacturing firms active in the period 1994-2002 that contains information on outward FDI and exports to different markets in order to test three empirical hypotheses that relate the decision for outward FDI to total factor productivity. First, the evidence supports the hypothesis proposed by Helpman, Melitz and Yeaple (2004) that more productive firms are more likely to invest in a foreign affiliate. Second, the hypothesis proposed by Head and Ries (2003) that less productive firms may be encouraged to invest in low-income countries is rejected by the data. However, the main contribution of the paper is to confirm the third hypothesis that required firm's productivity increases with the number of markets that the firm serves, i.e. there is a positive relationship between the number of a firm's foreign affiliates and its total factor productivity.

Suggested Citation

Damijan, Joze P. and Polanec, Saso and Prasnikar, Janez, Outward FDI and Productivity: Micro-Evidence from Slovenia. The World Economy, Vol. 30, No. 1, pp. 135-155, January 2007. Available at SSRN: https://ssrn.com/abstract=958433 or http://dx.doi.org/10.1111/j.1467-9701.2007.00876.x

Joze P. Damijan (Contact Author)

University of Ljubljana, Slovenia - Department of International Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia
+386 61 189 24 00 (Phone)
+386 61 189 26 98 (Fax)

Saso Polanec

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Janez Prasnikar

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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