Analysis of Productivity Differences among Foreign and Domestic Firms: Evidence from Germany

Abstract

This paper presents differences in firm-level total factor productivity (TFP) across 22 manufacturing and 17 service industries in Germany over the period 1995–2004. It is an attempt to study whether and to what extent foreign multinational enterprises (MNEs) are more productive relative to German firms. As well as distinguishing between foreign and domestic firms, we also distinguish between German MNEs and domestic firms that do not have any foreign presence. Controlling for endogeneity through semi-parametric techniques, our findings indicate considerable heterogeneity in firm performance across types of firms. The foreign/domestic distinction is not as clear cut as has been suggested elsewhere; multinationality is important in explaining productivity differences rather than foreignness.