Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 381: Outward FDI and company performance in CEECs

Jože Damijan (), Crt Kostevc () and Matija Rojec ()
Additional contact information
Jože Damijan: University of Ljubljana, LICOS, VIVES and Institute for Economic Research, Ljubljana
Crt Kostevc: University of Ljubljana and Institute for Economic Research, Ljubljana
Matija Rojec: University of Ljubljana, Institute for Economic Research, Ljubljana, and Institute of Macroeconomic Analaysis and Development, Ljubljana

Abstract: Using a large sample of micro data we investigate what kind of CEECs-9 (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Poland, Romania, Slovakia and Slovenia) firms tend to invest abroad, and what is the impact of outward FDI on their productivity. We find that firms with outward FDI tend to be larger and more productive, i.e. the best firms tend to self-select into outward FDI. There is also a positive effect of outward FDI on productivity growth of investing firms from CEECs, but this effect is driven exclusively by the subsamples of Czech and Romanian firms, while the impact in other countries is substantially less pronounced. In addition, the positive effect does not appear to be long lasting as it is only statistically significant a year after the investment was made, while employing longer lags yielded positive but insignificant correlations. We also find the heterogeneity of effects by different host-country markets, i.e. investments by CEECs firms into either Western European or other CEECs yielded an above average effect on productivity growth of investing firms, investments into other parts of Europe did not significantly impact the growth of productivity, while North American subsidiaries were even negatively correlated with productivity growth.

Keywords: FDI; cross-country comparisons; emerging economies; productivity growth; micro-data

JEL-codes: C30; F23; O47; O57

26 pages, October 24, 2014

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