What is a Foreign Firm? Implications for Productivity Spillovers

49 Pages Posted: 11 Jun 2018

See all articles by Lisbeth la Cour

Lisbeth la Cour

Copenhagen Business School

sara mcgaughey

Griffith University - Griffith Business School

Pascalis Raimondos

Queensland University of Technology - School of Economics and Finance; Copenhagen Business School - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2018

Abstract

When searching for productivity spillovers from foreign firms, a firm is typically classified as foreign using a low threshold of direct foreign ownership. Instead, we advocate an `ultimate owner' definition because (i) ultimate ownership includes indirect ownership links that are prevalent in our complex, interdependent world; and (ii) it confers control. Control brings greater willingness to transfer knowledge to foreign affiliates but, paradoxically, also greater potential for spillovers. Adopting this alternate definition of what is foreign turns out to be pivotal for identifying spillovers: while we find no horizontal productivity effects using the low threshold direct ownership definition, we find positive and significant effects under the ultimate-owner definition. Moreover, we find evidence that indirectly controlled foreign firms exert the most persistent horizontal spillovers to domestic firms.

Keywords: control vs influence, direct vs. ultimate owner, Foreign direct investment, indirect ownership links, productivity spillovers

JEL Classification: F23

Suggested Citation

la Cour, Lisbeth and mcgaughey, sara and Raimondos, Pascalis, What is a Foreign Firm? Implications for Productivity Spillovers (June 2018). CEPR Discussion Paper No. DP12978, Available at SSRN: https://ssrn.com/abstract=3193981

Lisbeth La Cour (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Sara Mcgaughey

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

Pascalis Raimondos

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Copenhagen Business School - Department of Economics ( email )

Solbjergs Plads 3
DK-2000 Frederiksberg C
Denmark
+45 38 152 594 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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