Patrik Karpaty

Productivity Effects of Foreign Acquisitions in Swedish Manufacturing: The FDI Productivity Issue Revisited

Abstract This study analyzes the difference between foreign and domestic ownership of firms with respect to productivity. Recent literature has shown that it is important to study the counter‐factual outcome, i.e. what would the outcome be had the domestic firm never been acquired? The analysis is based on a panel of Swedish firm level data. In order to isolate the casual effects due to a takeover a propensity score matching estimator is applied to compare similar treated and untreated firms. The difference‐in‐difference estimations show that there is a positive effect of foreign acquisition on productivity. Foreign acquisitions increase the productivity in the acquired Swedish firms by between 3 and 11% depending on the estimator chosen. Moreover, this productivity difference does not occur immediately but starts between 1–5 years post acquisition.

Service-sector competition, innovation and R&D

The central prediction of the Aghion, Bloom, Blundell and Howitt model is an inverted U-shaped relationship between innovation and competition. The model is built on the assumption of a product market and has not yet been tested on the service sector. Using detailed firm-level data on Swedish service-sector firms, we find evidence of an inverse U-shaped relationship for exporting service-sector firms. A further breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for intramural R&D and training, but not for extramural R&D. Finally, the results indicate that as competition increases, small firms tend to seek strategic alliances with competitors, whereas large firms tend to reduce collaboration with competitors. The behavior of large firms can partly be due to their superior capacity to handle innovation projects internally, which will become more important if increased competition results in higher pay-offs to innovation.

Foreign Acquisition and Employment Effects in Swedish Manufacturing

This paper investigates the employment effects of foreign acquisitions in acquired firms in Swedish manufacturing during the 1990s, a period characterized by a dramatic increase in foreign ownership. To handle likely endogeneity problems, we evaluate the effects of foreign acquisitions on the targeted firms’ employment by combining propensity score matching with difference-in-difference estimation. We find some evidence of positive employment effects in firms taken over by foreigners and it seems that the employment of skilled labor increases more than the employment of less-skilled labor. Moreover, we examine whether the employment impact of foreign ownership differs between takeovers of Swedish MNEs and non-MNEs. Our results indicate that the positive employment effects only appear in acquired non-MNEs. Furthermore, we observe shifts in skill intensities toward higher shares of skilled labor in non-MNEs taken over by foreign MNEs but not in acquired Swedish MNEs

Offshoring and Home Country R&D

National concerns are sometimes raised against offshoring of economic activities to other countries. While most of the existing literature has focused on the effects on labor demand and productivity the effects on domestic R&D have been neglected. This is unfortunate since the decision to offshore activities also includes R&D. We use unique and rich firm level data for the Swedish manufacturing sector to analyze how offshoring impacts domestic R&D and how these effects vary with respect to target region and type of firm. The results suggest that offshoring of production alter a firm’s investments in R&D in Sweden and that a negative impact on home country R&D is confined to offshoring by non-multinationals and offshoring to Europe and EU15 countries.

Foreign Acquisitions, Domestic Multinationals, and R&D: Foreign acquisitions, domestic multinationals, and R&D

The aim of this paper is to evaluate the causal effect of foreign acquisition on R&D intensity in targeted domestic firms. We are able to distinguish domestic multinationals and non-multinationals, which allows us to investigate the fear that the change in ownership of domestic to foreign multinationals leads to a reduction in R&D activity in the country, as headquarter activities are relocated to the new owners home country. We use unique and rich firm level data for the Swedish manufacturing sector and different micro-econometric estimation strategies in order to control for the potential endogeneity of the acquisition dummy. Overall, our results give no support to the fears that foreign acquisition of domestic firms lead to a brain drain of R&D activity in Swedish MNEs. Rather, this paper finds robust evidence that foreign acquisitions lead to increasing R&D intensity in acquired domestic MNEs and non-MNEs.

Foreign Acquisitions, Domestic Multinationals, and RaD

The aim of this paper is to evaluate the causal effect of foreign acquisition on R&D intensity in targeted domestic firms. We are able to distinguish domestic multinationals and non-multinationals, which allows us to investigate the fear that the change in ownership of domestic to foreign multinationals leads to a reduction in R&D activity in the country, as headquarter activities are relocated to the new owners home country. We use unique and rich firm level data for the Swedish manufacturing sector and different micro-econometric estimation strategies in order to control for the potential endogeneity of the acquisition dummy. Overall, our results give no support to the fears that foreign acquisition of domestic firms lead to a brain drain of R&D activity in Swedish MNEs. Rather, this paper finds robust evidence that foreign acquisitions lead to increasing R&D intensity in acquired domestic MNEs and non-MNEs.