How Domestic and Foreign Firms Differ and Why Does it Matter?

Abstract

. This paper reviews and summarises the results of selected studies on performance gaps between multinational enterprises and their domestic counterparts. Performance gaps arise in such fields as productivity, technology, profitability, wages, skills and growth. While these gaps are often attributed to foreign ownership of the affiliates, the theory of the Multinational Enterprise argues that these gaps are due to being a Multinational rather than the nationality of the firm. Empirical evidence on the existence of performance gaps between foreign and domestic firms is supportive of this view: foreign ownership turns out to be a much less important explanatory factor than normally assumed. Firm‐specific assets and firm characteristics like industry, size, parent country and multinationality per se are more important. Such results are broadly consistent with those derived in the literatures on ownership change, on foreign entry and on spillovers. We conclude that there is little case for foreign direct investment promotion policies to discriminate between firms on the basis of ownership.

Non-union worker representation, foreign owners, and the performance of establishments

“…However, even if multinational enterprises have superior firm-specific assets, this does not necessarily mean that foreign direct investment is always efficient. Multinational enterprises may use their superior assets for rent-seeking activities and exploitation of market power (Bellak, 2004).…”

Persistent high-growth firms in China’s manufacturing

“…For example, Beck et al (2005) find that growth rates of government-owned firms are lower while foreign firms tend to display high-growth. Based on meta analysis, Bellak (2004) suggests that the growth rates of domestic and foreign firms are not significantly different.…”

Corporate Capital of Domestic and Foreign Firms in Africa – An Empirical Review

“…In some instance, developing countries' governments promote and support foreign ownership of corporations based on expected positive externalities arising from the impression that such firms bring foreign capital and technological expertise (Harrison et al, 2004), enjoy systematic superior performance compared to their domestic counterparts (Bellak, 2004), and that there is a positive correlation between foreign direct investments and economic growth (Lee and Chang, 2009; Hermes and Lensink, 2003; and others).…”