American Economic Review: Vol. 102 No. 7 (December 2012)


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Innovation and Foreign Ownership

Article Citation

Guadalupe, Maria, Olga Kuzmina, and Catherine Thomas. 2012. "Innovation and Foreign Ownership." American Economic Review, 102(7): 3594-3627.

DOI: 10.1257/aer.102.7.3594


This paper uses a rich panel dataset of Spanish manufacturing firms (1990-2006) and a propensity score reweighting estimator to show that multinational firms acquire the most productive domestic firms, which, on acquisition, conduct more product and process innovation (simultaneously adopting new machines and organizational practices) and adopt foreign technologies, leading to higher productivity. We propose a model of endogenous selection and innovation in heterogeneous firms that explains both the observed selection patterns and the innovation decisions. Further, we show in the data that innovation upon acquisition is associated with the increased market scale provided by the parent firm.

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Guadalupe, Maria (INSEAD, Fontainebleau)
Kuzmina, Olga (New Economic School, Moscow)
Thomas, Catherine (London School of Economics and Political Science)

JEL Classifications

D22: Firm Behavior: Empirical Analysis
D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
F23: Multinational Firms; International Business
G34: Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
L60: Industry Studies: Manufacturing: General
O31: Innovation and Invention: Processes and Incentives

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