Multinationals, technology and productivity

In the last two decades, Foreign direct investment (FDI) by multinational companies has grown at much higher rates than international trade or output or domestic investment. The share of international production in world output - measured by the share of value added of foreign affiliates in world GDP increased from 7% in 1990 to an estimated 10% in 2005 (UNCTAD, 2006) and is likely to continue growing.

Multinational companies play a major role in spreading new technologies. We look at the productivity premium of foreign firms in the UK - are they 'cherry picking' the best UK plants? See Multinationals and US Productivity Leadership: Evidence from Great Britain.

Is their advantage due to better use of IT? We analyse this is in It ain't what you do, it's the way that you do I.T. We find that US firms have higher returns to IT. One possible explanation of this finding is that they also invest more in organisational capital. This is confirmed in Information Technology, Organisational Change and Productivity Growth: Evidence from UK Firms.

We also look at whether multinationals innovate more. This is not just because multinationals firms use more researchers. It is also because they learn more from more sources such as suppliers and customers, universities, and their intra-firm worldwide pool of information see Global Engagement and the Innovation Activities of Firms.

How much do foreign multinationals contribute to the productivity growth of the host country? An answer to this question can be found in Foreign affiliates in OECD economies: presence, performance and contribution to host countries' growth.

Are foreign multinationals stimulating faster domestic plant productivity through learning and competition? The topic has been investigated in Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab and Mapping the Two Faces of R&D: Productivity Growth in a Panel of OECD Industries

We also look at whether investing overseas in R&D labs helps UK firms tap into foreign knowledge. We find that it does - see How Special is the Special Relationship? Using the Impact of R&D Spillovers on UK Firms As a Test of Technology Sourcing.

This project is run in collaboration with BIS, ONS and HP (formerly EDS).


For further information contact Chiara Criscuolo

Completed Project: Firm Inequality and Individual Inequality

Inequality between workers in Britain, the US and many other countries has growth dramatically over the last 25 years. But has the inequality of productivity between firms grown over time? We will research whether the growth in individual inequality of wages is closely linked to firm inequalities of productivity and size. Our ambition is to characterise the changing inequality of firms' productivity in relation to the inequality between workers' wages. This of course links closely to work in the Labour and Education programs.

For further information contact John Van Reenen

Related Publications:

The Evolution of Inequality in Productivity and Wages: Panel Data Evidence, CEP Discussion Paper 821, G. Faggio, K.G. Salvanes and J. Van Reenen, August 2007