Domestically-owned Firms Research Articles

Firm heterogeneity and export behavior: evidence from Tunisia

ABSTRACT We use unique enterprise survey data to explore the export behavior of firms in Tunisia, a small, trade-dependent country with a complex policy environment regarding exporting. Firms may export directly or indirectly through intermediaries, and can also sell to ‘offshore’ firms, which are export manufacturing firms with special legal status. Firm size, a proxy for productivity, is strongly associated with exporting of either type as well as with sales to offshore firms. In contrast to some studies, exporting is not positively associated with firm age (i.e., experience). Domestic-owned firms are more likely to use intermediaries to export while foreign-owned firms as well as those with more educated managers are more likely to export directly. Multinomial logit results reject the hypothesis of progression from indirect exports through direct plus indirect exporting and then to direct-only exporting as firm size increases; instead, the largest exporting firms are more likely to combine direct and indirect exporting, possibly to reduce risk. The findings from this study – the first to examine the heterogeneity of exporting behavior in Tunisia – reveal a complex picture of such behavior and confirm the importance of trade intermediaries for less sophisticated firms (those with lower manager education and internet access), pointing to potential measures to encourage exporting among such enterprises. The findings also suggest that efforts to encourage exporting may also improve firms’ ability to sell to ‘offshore’ firms, enhancing the so far elusive linkages of that sector with the rest of the economy.

Exchange rate shocks, multinational firms and access to finance

AbstractI estimate the effect of financial constraints on the response of firms that import inputs to a large exchange rate depreciation. Using data from a census on Indonesian firms, I find that while domestic importers face lower value added due to a rise in their costs of production, foreign‐owned importers fare better: they are more likely to sustain higher value added, hire more labor and use more materials than domestic owned firms. These effects are driven by firms in industries with high demand for external finance, emphasizing the importance of access to finance in mitigating the impact of trade and credit shocks. This suggests another channel through which FDI can add value to a firm in a developing country, particularly with the increasing importance of trade in intermediate goods.

Export Spillovers from Foreign Direct Investment in Kenya's Manufacturing Sector: A Double Hurdle Approach

ABSTRACT: This paper investigates export spillovers from foreign direct investment on the exporting activities of domestic manufacturing firms in Kenya. Specifically, the paper aims at identifying the transmission channels through which foreign direct investment affects the export propensity and export intensity decisions of domestically-owned firms. The study also examines the importance of firm-level heterogeneity on the occurrence and behavior of spillover channels. The study uses a panel data set for manufacturing firms in Kenya, obtained from the World Bank Enterprise Surveys, conducted in three waves covering the period 2007–2018. Employing the Double-Hurdle model approach, and using the maximum likelihood estimation technique, we empirically demonstrate the relevance and significance of distinguishing three channels for intra-industry (horizontal) spillovers – demonstration effects, information effects and competition effects channels and one channel for vertical spillovers, that is, backward linkage channel. Findings of this study shows that domestically-owned firms in Kenya experience significant positive export spillovers on their export participation decisions through the demonstration effects channel and significant negative spillovers via the competition effects channel. The findings also show significant positive export spillover effects on the export intensity decisions of domestically-owned firms via information and competition effects channels and significant negative export spillover effects via the backward linkages channel. The results further provide evidence that firms belonging to industries with low technological levels were unable to absorb spillover benefits from foreign presence via the demonstration effects channel. The results also indicate that small and medium firms were unable to reap export spillovers benefits via information effects and backward linkage channels. The findings have important policy implications for managers of firms and policymakers in Kenya and other developing countries. To enhance export-related spillover benefits, domestic firms need to enhance their absorptive capacities by upgrading their technical capacities and improving quality standards. Governments should facilitate the exchange of information on investor needs, their capacities and skills requirements, thus bridging information gaps between domestic suppliers and foreign investors in addition to supporting domestic market linkages.

An Analysis of Technology Adoption by Export-oriented Manufacturers in Pakistan.

This paper analyses the issue of technology adoption by export-oriented enterprises based on survey data. Using the Rank Model of technology adoption, the paper explores the role of several firm level characteristics that can influence firm’s decision to adopt new technology. The results show that younger and bigger firms have a higher probability of technology adoption. Firms that have obtained certifications to product and process standards demonstrate a higher likelihood of technology adoption. Domestically-owned firms are found to have a higher probability of technology adoption as compared with foreign-owned firms. The empirical findings underscore the need for policy options to encourage export-oriented enterprises to adopt new technology including, for example, fiscal incentives to encourage research and development activities, and up-gradation of physical infrastructure for product testing to facilitate certifications. JEL classification: C25, L60, O14 Keywords: Manufacturing Industries, Probit Model, Technology Adoption.

The trade-off between the economic and environmental footprints of multinationals’ foreign affiliates

The side effects of the production activities of multinational enterprises (MNEs) are a constant source of controversy. It is claimed that MNEs stimulate employment and technological progress in the countries where they operate, but they are simultaneously accused of intensifying inequality and environmental damages, especially in developing countries. Using a multiregional input-output model, in this paper, we trace the CO2 emissions and value added attributable to the foreign affiliates of multinational enterprises (FMNEs) to quantify the trade-offs between the economic benefits and environmental impacts along their global supply chains. The results show that FMNEs in most countries induce greater contributions to CO2 emissions than to value added along their supply chains. This is mostly explained by the concentration of MNEs production in industries with a high CO2 burden (manufacturing sectors) and their relatively low participation in high-value added activities (services). The analysis also shows that FMNEs generally have higher carbon intensities than domestic-owned firms in the same sector, especially in OECD countries, which undermines the efforts made by those countries to reduce global emissions. FMNEs incorporate larger portions of imported emissions into their carbon footprint than domestic companies, so they more often take advantage of carbon leakages and are more vulnerable to a potential carbon border tax. Since developed countries own the affiliates producing 89% of FMNEs’ global output, those countries should design policies to reduce the carbon footprints of their MNEs’ foreign activities in both developed and developing countries.

Smile curves in global value chains: Foreign- vs. domestic-owned firms; the U.S. vs. China

This paper uses the “smile curve” mapping tool with a Y-axis for value-added ratio and an X-axis for production stages to identify value-added gains, positions, and interdependencies of foreign- and domestic-owned firms in global value chains (GVCs). Taking the U.S. and China's ICT firms’ exporting activities as a target, we find that China-based domestic-owned ICT firms’ value chain appears as a smile curve differing from the U.S.-based domestic-owned ICT firms’ inverted-U curve, which reflects the considerable difference in their technical specialization in joining GVCs; foreign-owned firms are good at utilizing each country's comparative advantages and can thus arrange value chains as smile curves regardless of whether they are located in the U.S. or China; China-based domestic-owned firms have increasingly plugged into most ICT value chains. All findings reflect how “sticky” the interdependency among countries along GVCs is and can thus help understanding the impact of the U.S.–China trade war.

Intellectual property rights protection and export product quality: Evidence from China

Intellectual property rights protection (IPP) at destination countries is an important determinant of exports, a result shown by the existing literature. This paper empirically examines the effect of the degree of IPP on export product quality at the origins, using firm-product level data from Chinese exporters and city-level statistics of IPP. To establish the causal relationship, we employ an instrumental variable (IV) approach. Our panel regression results from 2008 to 2013 show that the de facto IPP contributes to the export product quality upgrading and the result is robust against variations of IPP measures, IVs, and different combinations of control variables such as the firm and industry level subsidies. Our heterogeneity results indicate that the betterment of IPP favors less capital-intensive firms; foreign-owned firms relative to domestic-owned firms; and firms in innovation-intensive industries. The effect of IPP on export product quality is statistically insignificant in certain geographic regions (i.e., central and western regions) and trade mode (i.e., processing trade). In addition, we show that the channels through which IPP takes effect on product quality include strengthened R&D input, new product development, and mitigated financial constraints.

Private Ownership Structure and Firm Productivity: A Firm - Level Empirical Evidence from Nigeria

Private-owned firms make up a large chunk of the firms existing in different countries of the world, especially Nigeria, and as such, contribute its quota to economic activities and growth of the economy. This study examined private ownership structure and firm productivity from the angle of firm - level empirical evidence from Nigeria using World Bank, Nigeria enterprise survey 2014 data and applied econometric model based on OLS technique. It was found among others by the study that a percentage increase in firms owned by private domestic individuals, companies or organizations (private domestic owned firms), would on the average have a significant positive impact on firm productivity in Nigeria by about 0.217276 units. In line with this, the study concludes that private domestic owned firms has positive significant impact on firm productivity in Nigeria. The study recommended among others that government should create more enabling/conducive business environment for private domestic firms to thrive and contribute more to overall economic growth and development. When this done, it will significantly increase employment, especially youth employment, reduce poverty and the menace of insecurity, increase per capita incomes, raise overall standard of the living of the people, and finally contribute significantly to economic growth and development of not only Nigeria, but Africa at large.

Foreign Ownership, Exporting and Gender Wage Gaps: Evidence from Japanese Linked Employer-Employee Data

We explore potential relationships between international economic activities and gender wage gaps (GWGs) using linked employer-employee data for Japan. We find evidence that exporting and multinational activities are associated with reduced GWGs. Domestic-owned firms that neither export nor invest abroad (i.e., domestic-only firms) report the largest GWG, followed by Japanese-owned multinational enterprises (JMNE), then by locally-owned exporters that do not invest abroad and finally by foreign-owned multinational enterprises (FMNE). We separate FMNE by mode of entry and confirm that FMNE established by greenfield investment deviate more than FMNE established by merger and acquisition from domestic-only firms in terms of wages. Greenfield-born FMNE are associated with the smallest GWG and largest gender-neutral wage premium among the firm types. The estimated GWG among Greenfield-born FMNE is almost 12 percentage-points lower than the 26.8 percent prevailing at domestic-only firms.

The Effects of Foreign Multinationals on Workers and Firms in the United States

AbstractGovernments go to great lengths to attract foreign multinationals because they are thought to raise the wages paid to their employees (direct effects) and to improve outcomes at local domestic firms (indirect effects). We construct the first U.S. employer-employee data set with foreign ownership information from tax records to measure these direct and indirect effects. We find the average direct effect of a foreign multinational firm on its U.S. workers is a 7% increase in wages. This premium is larger for higher-skilled workers and for the employees of firms from high GDP per capita countries. We find evidence that it is membership in a multinational production network—instead of foreignness—that generates the foreign-firm premium. We leverage the past spatial clustering of foreign-owned firms by country of ownership to identify the indirect effects. An expansion in the foreign-multinational share of commuting-zone employment substantially increases the employment, value added, and—for higher-earning workers—wages at local domestic-owned firms. Per job created by a foreign multinational, our estimates suggest annual gains of US$13,400 to the aggregate wages of local incumbents, two-thirds of which are from indirect effects. Our estimates suggest that—via mega-deals for subsidies from local governments—foreign multinationals are able to extract a sizable fraction of the local surplus they generate.

Newcomers from the Periphery: The International Expansion of Polish Automotive Companies

The rapid growth of Central European economies has been related to inward FDI, so these countries are often regarded as dependent market economies. What is interesting in this context is the international expansion of some domestic-owned manufacturing companies from Central Europe. Looking through the lens of global production networks (GPN) and evolutionary resilience perspectives, the paper aims to identify paths and mechanisms of development of new multinational companies, namely Polish automotive firms expanding from around 2010 onwards in the global markets through acquisitions and greenfield investments in Western Europe, North America, and Asia. The authors ponder on the underlying motives and barriers of this process, the capabilities, and features of Polish-owned companies. In order to do it, both qualitative (13 interviews with representatives of new multinationals and the other stakeholders preceded by content analysis of various documents, including company annual reports in particular) and quantitative (analysis of international trade, revenues, employment, locational data) insights are used for the period covering the time span between 1999 and 2020. As the result, the international expansion of domestic-owned firms is interpreted as a specific critical conjuncture of three mechanisms: (1) development of Central-Eastern European economies since the end of communism, (2) the evolution of the Western European core, and (3) the trajectory of individual Polish firms. We argue development trajectories of the firms going global cannot be understood without taking into account the dynamic interdependence between firm-specific capabilities (including the position within GPNs) and the changing characteristics of the countries (e.g., evolving regional assets).

Foreign-Versus Domestic-Owned firms in the Predicament ‘Cui bono?’

Abstract Background: This article examines the productivity of domestic firms in the case of the foreign ownership. Objectives: Foreign direct investments affect the competitive competences of domestic firms; thus, the objective is to see the way foreign ownership drives the growth of domestic firms. Methods/Approach: The study uses standard models to analyse productivity; they are applied to data sets of Macedonia, a Southeast European economy, and it is concluded that foreign ownership has a major role in domestic firms’ restructuring processes increasing their productivity. Results: Surely, the results support the principal notion that the augmented presence of foreign firms is to influence the restructuring and business activity of domestic companies positively. Conclusions: Our analysis verifies that foreign ownership has influenced the overall economy and particularly domestic-owned firms with the constant increase in employment and especially direct export.

The Effects of Foreign Multinationals on Workers and Firms in the United States

Governments go to great lengths to attract foreign multinationals because they are thought to raise the wages paid to their employees (direct effects) and to improve outcomes at local domestic firms (indirect effects). We construct the first U.S. employer-employee dataset with foreign ownership information from tax records to measure these direct and indirect effects. We find the average direct effect of a foreign multinational firm on its U.S. workers is a 7 percent increase in wages. This premium is larger for higher skilled workers and for the employees of firms from high GDP per capita countries. We find evidence that it is membership in a multinational production network—instead of foreignness—that generates the foreign firm premium. We leverage the past spatial clustering of foreign-owned firms by country of owner-ship to identify the indirect effects. An expansion in the foreign multinational share of commuting zone employment substantially increases the employment, value added, and—for higher earning workers—wages at local domestic-owned firms. Per job created by a foreign multinational, our estimates suggest annual gains of 13,400 USD to the aggregate wages of local incumbents, two-thirds of which are from indirect effects. Our estimates suggest that—via mega-deals for subsidies from local governments—foreign multinationals are able to extract a sizable fraction of the local surplus they generate.

Foreign-owned firms as agents of structural change in regions

ABSTRACT This paper investigates the role of different types of firms in related and unrelated diversification in regions, in particular the extent to which foreign-owned firms induce structural change in the manufacturing capability base of 67 Hungarian regions between 2000 and 2009. Doing so, it connects more tightly the literatures of evolutionary economic geography and international business. The results indicate that foreign-owned firms deviate more from the region's average capability match than domestic-owned firms. However, this deviation is larger on the short run than in the long run, and more pronounced in peripheral regions and in the capital region.

Gender Pay Gap Patterns in Domestic and Foreign-Owned Firms

We investigate differences in gender wage gaps between foreign-owned and domestically-owned firms in Poland, a country that has experienced large FDI inflows over the past three decades. In line with the findings of several other studies, we show that according to standard estimates of adjusted gender wage gaps, these differences are much larger in the foreign-owned companies than in the domestic firms.However, we also find that these estimates cannot be trusted because the domestically-owned firms have considerably higher levels of gender segregation, and because the OLS estimates of the adjusted gender wage gaps in this sector are more likely to be biased. Using a matching and decomposition technique (Nopo 2008) that allows us to capture gender wage differentials over a common support, we find that gender wage gaps in domestically-owned firms are only slightly smaller than those in foreign-owned companies.Our results also indicate that women tend to segregate into low-paid jobs in the domestic sector, whereas there is no evidence of such a pattern in the foreign sector. The analysis furthers shows, however, that foreign-owned companies have much larger within-firm differences in earnings (net out of composition effects), and that these earnings they pay vary less across firms. In sum, we find that the nature of gender wage gaps and the factors that underlie them differ between domestic and foreign-owned companies.

Экспортная и импортная деятельность российских компаний с ПИИ в условиях санкций

This research evaluates the efficiency of exporting and importing companies with FDI. In their study, the authors set up a hypothesis that companies with export and import activities are the most efficient. They are followed by only importing companies and then by companies that only export; the least efficient are fully domestically-owned firms which do not participate in international trade. Another hypothesis is dedicated to the assessment of influence of imposed sanctions on importing companies’ productivity. As a research methodology, the return on assets (ROA) index for companies with FDI in comparison with national enterprises is used to test the first hypothesis. Moreover, for the same purpose the authors apply the classic approach of the DEA method as well as DEA with the regard for spillover effects from FDI. The second hypothesis is examined with the help of the Malmquist index for importing and exporting firms. The empirical database consists of approximately 170,000 records of more than 33,000 Russian enterprises, taking into account to which of the six major sectors of the Russian economy they belong. As a result of the study, the authors conclude that companies with FDI are characterized with a higher level of efficiency compared to companies without foreign capital. Furthermore, international companies are more efficient than enterprises which do not take part in international trade. Concerning the second hypothesis, the authors establish that the sanctions have a negative impact on importing companies’ efficiency, which is especially evident in comparison with growing productivity of exporting firms. This trend could be explained by decreasing FDI inflows into the country and also import restrictions by imposed sanctions, which adversely affect importing companies’ efficiency.

The contribution of multinationals to wage inequality: foreign ownership and the gender pay gap

While an abundance of studies exists documenting the significant wage premium of multinationals (MNE) and the effects of foreign direct investments on wage inequality, much less is still known about how foreign ownership of firms affects the gender wage gap. Based on employer-employee level data from Estonia—a country with the largest gender wage gap in the EU—this study highlights a regularity that foreign owned firms on average display a substantially larger gender wage gap than domestic owned firms. Among different occupation groups, this result is especially evident among managers. Furthermore, this difference is also evident if we focus on acquisitions of domestic firms by foreign MNEs and estimate its effects based on propensity score matching. The resulting increase in the gender wage gap is due to men capturing a higher wage premium from working at foreign owned firms than women, although both tend to gain in terms of wages from being employed at foreign owned firms. We find evidence (albeit limited) suggesting that one of the explanations of the difference between foreign and domestic owned firms in the gender wage gap could be that foreign owned firms require more continuous commitment from their employees compared to other firms.

Does Bank Competition Spur Firm Innovation?

This article contributes to the literature by examining how the increase in bank competition impacts firms’ innovation and how firm size and firm ownership impact the effect of bank competition. Using data which includes the banking sector and firm information across Chinese prefecture-level city over the period 1998-2011. The robust evidence shows that bank competition improves firm-level innovation by firms headquartered within competing regions and find that the positive effect of bank competition is stronger for small and medium-sized enterprises (SMEs), non-state-owned enterprises (non-SOEs) and domestically-owned firms compared to large firms, SOEs, and foreign-owned firms, respectively. We also find that bank competition poses more beneficial effects on innovative performance for firms with more opaque, more dependent on external financing, high debt cost, and short operating years. Overall, these results provide light on the determinants of innovation and the real effects of bank competition.

The Contribution of Multinationals to Wage Inequality: Foreign Ownership and the Gender Pay Gap

While an abundance of studies exists documenting the significant wage premium of multinationals (MNE) and the effects of foreign direct investments (FDI) on wage inequality, much less is still known about how foreign ownership affects the gender wage gap of employees in firms. Based on employer-employee level data from Estonia – a country with the largest gender wage gap in the EU – this study highlights the regularity that foreign owned firms display on average a substantially larger gender wage gap than domestically owned firms. Among different occupation groups, this result is especially evident among managers. Furthermore, this difference is also evident if we focus on acquisitions of domestic firms by MNEs and estimate its effects based on propensity score matching. The resulting increase in gender wage gap is due to men capturing a higher wage premium from working at foreign owned firms than women, although both tend to gain in terms of wages from being employed at MNEs. We find evidence (albeit limited) suggesting that one of the explanations of the difference in the gender wage gap between foreign-owned and domestically-owned firms could potentially be that MNEs require more of a continuous commitment from their employees compared to other firms.

R&D, foreign ownership, and corporate groups: Evidence from Japanese firms

This study empirically examines whether the research and development (R&D) activities of foreign-owned firms in Japan differ notably from the R&D activities of domestically-owned firms based on a firm-level panel dataset. Our study carefully disentangles the significant differences in R&D investment behavior of subsidiaries due to three different reasons: having a foreign parent, corporate group affiliation, and the degree of relatedness between business units. The results reveal the following. First, firms that are majority-owned by another firm are less active in R&D than independent firms. Second, foreign ownership does not matter if the parent firm is from a G7 country, but R&D intensity is significantly and positively associated with foreign ownership if the parent firm is from a non-G7 country. Finally, for subsidiaries whose business is related to that of their parent firm, the R&D intensity is lower if the parent is a domestic firm, but higher if it is a foreign firm. These findings imply that globalization and the integration of firms may not only affect production patterns and global supply chains, but may also have an important impact on the level of domestic R&D activities.