Multinational Companies and Productivity Spillovers: Is There a Specification Error?

Recent empirical works on the within-sector impact of inward investments on domestic firms' productivity have found rather robust evidence of no (or even negative) effects. This paper argues that a specification error might characterise those studies. In fact, measuring foreign presence as the share of foreign to total sectoral activity (e.g. foreign employment share) in a sector, existing literature implicitly assumes that changes in the same...