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Does Outward Foreign Investment Matter for Canadian Productivity? Evidence from Greenfield Investments

Naveen Rai, Lena Suchanek and Maria Bernier

Staff Working Papers from Bank of Canada

Abstract: This paper seeks to understand how outward foreign direct investment (FDI) affects the productivity of Canadian firms. We estimate the impact of outward greenfield investment on measures of firm-level productivity using FDI data from roughly 2,000 Canadian firms and more than 4,000 outward FDI projects over the 2003–14 period. Combining matching techniques with a difference-in-difference approach, we find that firms that invest abroad tend to see more important productivity gains one to two years after the investment, compared with firms that are otherwise similar but remain domestic, suggesting that outward investment has beneficial implications for investing firms. Further, panel regression analysis at the provincial level shows that an increase in the number of outward investment projects is found to be associated with higher productivity growth, particularly for investments in OECD countries. The result suggests that learning or technological spillover effects are particularly important when investing in countries close to the home country’s technological frontier.

Keywords: Firm dynamics; Productivity (search for similar items in EconPapers)
JEL-codes: D24 F21 F23 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018
New Economics Papers: this item is included in nep-eff, nep-int and nep-sbm
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Handle: RePEc:bca:bocawp:18-31