Foreign firms in the industry frontier and productivity convergence: Importance of proximity and firm attributes

Abstract

AbstractThis study examines how size and other firm attributes explain establishment‐level productivity catch‐up using an establishment‐level panel dataset from Chile. Results suggest overall productivity convergence with comparatively slower rate to the foreign‐owned component in the frontier. Firms that are small in size, non‐exporter, non‐importer, and low technology‐concentrated demonstrate greater catch‐up rate. Additionally, foreign‐invested firms (FIFs) exhibit faster catch‐up rate to the industry frontier than their domestic counterparts. Finally, geographic proximity to the frontier significantly boosts the catch‐up rate. Results are robust to the inclusion of firm‐level control variables and sample selection bias, and the estimated catch‐up rate is not sensitive to sample size.