International Investment and Firm Performance: Empirical Evidence from Small Open Economies

The global financial and economic crisis has severely affected foreign direct investment, particularly the cross-border mergers and acquisitions in advanced economies. This paper examines the effects of foreign mergers and acquisitions on labour productivity and employment growth over the period 2001-2009 in six small open economies in the European Union: Austria, Belgium, Denmark, Finland, the Netherlands and Sweden. We show that the severity of the crisis has been uneven across these six economies. Taken together, our estimates suggest that foreign direct investment had stronger effects on firm performance in services than in manufacturing.