A META-FRONTIER APPROACH TO MEASURE PRODUCTIVITY DIFFERENCES OF DOMESTIC AND FOREIGN AFFILIATED FIRMS

Halil Tunca,A Nazif Çatik,Mehmet Karaçuka

doi:10.3846/16111699.2011.653580

Halil Tunca, A Nazif Çatik + Show 1 more

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https://doi.org/10.3846/16111699.2011.653580

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Abstract

This paper aims to evaluate the performance of foreign affiliated and domestic firms in Turkish manufacturing subsectors covering the period 1992 and 2001. Due to the heterogeneity between domestic and foreign affiliated firms in terms of technology level, we construct a meta-frontier model to measure relative efficiency and technology gap ratios (TGR's) of domestic and foreign affiliated firms. We find that technical efficiencies of foreign affiliated firms are higher than domestic firms, and display a stable pattern during the investigation period. However; technology gap ratios indicate the existence of a negative relationship between the TGR's and technical efficiency of the firms in domestic subsectors. This means that technically efficient firms are in fact using the low level of technology. However the results do not indicate any significant relationship between the technical efficiency and TGR's of foreign affiliated firms.

Highlights

An important policy recommendation for developing countries is that; they need to attract foreign capital to decrease the gap between savings and expenditures, and to increase productivity levels in domestic production
We find that technical efficiency ratios of foreign affiliated firms are higher than domestic firms, and show a stable pattern during the period subject to the analysis
Low level of Technology Gap Ratio (TGR) in domestic firms can be attributed to low level of research and development (R&D) and the absence of technology spillovers between domestic and foreign affiliated firms

Summary

Introduction

An important policy recommendation for developing countries is that; they need to attract foreign capital to decrease the gap between savings and expenditures, and to increase productivity levels in domestic production. The empirical evidence does not support this theory unanimously; and suggests that productivity benefits are not automatic, but local conditions influence firms’ adoption of foreign technologies and skills (Blomstrom, Kokko 1998, 2003). The productivity increases through foreign affiliated firms require a threshold level of human capital and absorptive capacity of local firms (Borenzstein et al 1998), but even more importantly it is essential that foreign firms engage in technological activities in the local economy. Only 13.5% of R&D expenditures by United States parent companies were located in developing countries and concentrated mostly in five countries (China, Singapore, Brazil, Mexico and the Republic of Korea) in 2002 (UNCTAD 2005)

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