Foreign firms and host-country productivity : does the mode of entry matter?

Abstract

Foreign direct investment is often considered an important source of knowledge spillovers. However, results from the empirical literature relating overall foreign presence to host country productivity are ambiguous. We argue that this may be because different modes of entry may have different effects on productivity. Using 24 years of comprehensive panel data for Norwegian Manufacturing, we find that greenfield entry has a negative impact on the productivity growth of domestic plants, while entry via acquisition affects local productivity positively. The net effect is a small positive effect of an overall change in foreign presence on local productivity growth.