Foreign Investment and Firm Productivity: A Meta-Analysis

Empirical estimates of the effects of foreign investment on productivity in both manufacturing and service firms vary widely between countries. A meta-analysis of the existing empirical estimates allows us to econometrically examine the between estimates variation. From this empirical analysis, we reach conclusions about the country-specific factors driving the variation found in the empirical studies while controlling for study and estimation characteristics. Our evidence suggests that those service firms likely to experience increases in productivity following foreign acquisition are located in more economically advanced, although less open economies with high human capital, more efficient financial markets, more product market competition and stricter employment protection legislation. In addition, R&D intensity measures such as the number of R&D personnel intensity and business expenditure on R&D intensity, and specialisation in high-tech exports are positively linked to productivity gains following foreign acquisitions. We find both similarities and differences between the effect of foreign acquisition on productivity in service and manufacturing firms.