Multinational firms, productivity and employment

Abstract

Over the last three decades foreign direct investment (FDI) has become the most visible driver of globalisation. It has grown faster than world output and international trade and now reports world
annual flows exceeding 1,000 billion US dollars. In this period, Germany has undergone significant
changes in order to play an important role in the globalisation process. Apart from being a member state of the European Union (EU) whose key feature is the free flow of trade, investment and
labour, the re-unification of East and West Germany in 1990 has been a significant development.
This in effect has meant that East Germany as well as other Eastern European nations opened up to
foreign investment for the first time. In this period, Germany has attracted in excess of 10 per cent
of inward FDI into the EU and invested around 15 per cent of all FDI in the EU.
This thesis explores empirically the potential impact of FDI on firms operating in and investing from Germany over a ten year period. Using panel data at the firm-level it concentrates on three areas relating to FDI. Firstly, it considers whether foreign-owned firms are more productive than German multinational firms and German non-multinational firms. Secondly, the thesis considers the impact of German investments abroad on domestic productivity. Finally, employment effects emanating from outward high-tech FDI are estimated for the leading OECD (Organisation of Economic Co-operation and Development) countries, namely Germany, Belgium, France, the Netherlands, Sweden, the United Kingdom and Japan.
The findings of the first analysis indicate that while foreign-owned firms are generally more productive than German non-multinationals, there is no clear cut difference between foreign-owned firms and German multinationals. These differences would not have been uncovered, had the analysis compared foreign firms with all domestic firms. Equally, location within Germany is also important, as this productivity gap is more pronounced for firms which are located in the Eastern
states. The findings of the second analysis suggest that engaging in outward FDI has an overall
positive effect on the parent firm's productivity at home. Finally, results of the third analysis show
that an expansion of high-tech offshoring activities by OECD multinationals (MNEs) is not
associated with any reduction in employment at home.

Date of Award	Sept 2008
Original language	English
Supervisor	Nigel L Driffield (Supervisor)