Working Paper: CEPR ID: DP3503
Authors: Sourafel Girma; Holger Grg
Abstract: This paper calculates returns to scale and productivity growth in UK manufacturing establishments in the electronics and food industries. Our results show that foreign establishments tend to have lower returns to scale than their domestic counterparts. We also examine the effect of the acquisition of a domestic establishment by a foreign owner on returns to scale and productivity growth. We use a matching and difference-in-differences methodology which allows us to construct a reasonable counterfactual and to determine the post-acquisition changes in RTS and productivity that can be attributed to the incidence of acquisition, rather than to changes in other external conditions. In both sectors, acquisition has a negative effect on RTS, although the effect appears stronger in the food sector. The effect of foreign acquisition on productivity differs between sectors; establishments in the electronics sector experience a reduction in productivity post acquisition, while plants in the food sector increase productivity.
Keywords: acquisitions; foreign direct investment; productivity; returns to scale
JEL Codes: F23; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign ownership (F23) | returns to scale (RTS) (D24) |
| foreign ownership (F23) | productivity growth (O49) |
| acquisition of domestic establishment by foreign owner (F23) | returns to scale (RTS) (D24) |
| acquisition of domestic establishment by foreign owner (F23) | productivity (O49) |
| foreign ownership changes (F23) | productivity growth (O49) |
| foreign ownership changes (F23) | returns to scale (RTS) (D24) |