Foreign Firms and Productivity in Developing Countries


This paper analyzes productivity of domestically and foreign-owned firms in a sample of 118 developing and transition countries. A robust result is that foreign firms are more productive than domestic private firms, regardless of specification and accounting for unobservable heterogeneity across several dimensions. Accounting for observable firm level determinants of productivity, such as skilled labor, reduces the size of, but does not eliminate the statistically significant productivity premium. There is only weak evidence of a positive correlation between foreign firm presence in a sector and domestic firm productivity. However, there is some heterogeneity across regions.

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