Innovation and Foreign Ownership

Published on Dec 1, 2012in The American Economic Review4.10
· DOI :10.2139/ssrn.1717243
Maria Guadalupe16
Estimated H-index: 16
Olga Kuzmina3
Estimated H-index: 3
(New Economic School),
Catherine Thomas1
Estimated H-index: 1
(LSE: London School of Economics and Political Science)
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.
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