Working Paper: CEPR ID: DP8141
Authors: Maria Guadalupe; Olga Kuzmina; Catherine Thomas
Abstract: This paper uses a rich panel dataset of Spanish manufacturing firms (1990-2006) and a propensity score reweighting estimator to show that multinational firms acquire the most productive domestic firms, which, on acquisition, conduct more product and process innovation (simultaneously adopting new machines and organizational practices) and adopt foreign technologies, leading to higher productivity. We propose a model of endogenous selection and innovation in heterogeneous firms that jointly explains the observed selection process and the innovation decisions. Further, we show in the data that innovation on acquisition is associated with the increased market scale provided by the parent firm.
Keywords: foreign ownership; innovation; multinational production; productivity
JEL Codes: D22; F23; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign acquisition (F23) | increase in product and process innovation (O31) |
| Most productive domestic firms (D22) | Foreign acquisition (F23) |
| Foreign acquisition (F23) | Assimilation of foreign technologies (O36) |
| Foreign parent firm (F23) | higher levels of innovation (O35) |
| Market scale provided by foreign parent firm (F23) | drives innovation decisions (O31) |