Friday, September 7, 2012

GUADALUPE Maria, KUZMINA Olga, THOMAS Catherine,
Innovation and Foreign Ownership The American Economic Review 102, 7 (2012) 3594-3627

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 jointly explains the observed selection process and the innovation decisions. Further, we show in the data that innovation on acquisition is associated with the increased market scale provided by the parent firm.