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Foreign Ownership and Skill-biased Technological Change

Michael Koch and Marcel Smolka
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Michael Koch: University of Bayreuth, Germany

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Understanding the effects of foreign direct investment and the behavior of multinational enterprises (MNEs) is a core issue in the study of international economics. We exploit within-firm variation in ownership structure induced by foreign acquisitions in Spain to provide a new angle on the relationship among foreign ownership, technology, and skills. We first develop a model in which heterogeneous firms decide endogenously about the level of technology, the share of high-skilled workers, and the level of worker training. Foreign-owned firms implement better technology than domestically owned firms due to access to foreign markets through the foreign parent. This market size effect, coupled with a technology-skill complementarity, raises the demand for high-skilled workers as well as worker training upon acquisition. The largest productivity gains predicted by the model accrue to those firms that optimally combine better technology with a larger share of high-skilled workers in production and a better trained workforce. We test these predictions on a longitudinal data set of Spanish manufacturing firms. Combining firm fixed effects with a suitable propensity score weighting estimator, we find empirical evidence that foreign-acquired firms, not only increase their technology level, but also engage in skill upgrading upon acquisition (through both hiring and training). Moreover, we show that these changes are driven by the market size effect, and not by changes in the ownership structure per se. Finally, we reveal a technology-skill complementarity in the data implying that the productivity gains associated with better technology are magnified for firms actively engaging in skill upgrading. Overall, our paper provides strong evidence for the notion that foreign MNEs "inject" skill-biased technological change into their affiliated firms.

Keywords: Multinational Enterprises; Mergers and Acquisitions; Skill-biased Technological Change; Worker Training Productivity (search for similar items in EconPapers)
JEL-codes: D22 D24 F23 G34 (search for similar items in EconPapers)
Pages: 38
Date: 2017-05-23
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ino and nep-tid
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Related works:
Journal Article: Foreign ownership and skill-biased technological change (2019) Downloads
Working Paper: Foreign Ownership and Skillbiased Technological Change (2018) Downloads
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