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Outward FDI and Productivity: Micro‐evidence from Slovenia
Author(s) -
Damijan Jože P.,
Polanec Sašo,
Prašnikar Janez
Publication year - 2007
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2007.00876.x
Subject(s) - productivity , foreign direct investment , economics , order (exchange) , total factor productivity , empirical evidence , monetary economics , international trade , labour economics , macroeconomics , philosophy , finance , epistemology
This paper uses a rich data set of Slovenian manufacturing firms active in the period 1994–2002 that contains information on outward FDI and exports to different markets in order to test three empirical hypotheses that relate the decision for outward FDI to total factor productivity. First, the evidence supports the hypothesis proposed by Helpman, Melitz and Yeaple (2004) that more productive firms are more likely to invest in a foreign affiliate. Second, the hypothesis proposed by Head and Ries (2003) that less productive firms may be encouraged to invest in low‐income countries is rejected by the data. However, the main contribution of the paper is to confirm the third hypothesis that required firm's productivity increases with the number of markets that the firm serves, i.e. there is a positive relationship between the number of a firm's foreign affiliates and its total factor productivity.