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Multinationals and Domestic TFP: Market Shares, Agglomerations Gains and Foreign Ownership

Ioannis Bournakis, Marina Papanastassiou and Sotiris Papaioannou ()

MPRA Paper from University Library of Munich, Germany

Abstract: We revisit the puzzle regarding the role of Multinational Enterprises (MNEs) on Total Factor Productivity (TFP) of domestic firms by drawing attention to foreign ownership structure. First, we differentiate between market share (MS) due to competition effects and knowledge agglomeration gains (AG). The former induces market pressure, due to foreign presence, and makes domestic firms to charge lower price mark-ups. Second, we investigate whether intra-industry (horizontal) and inter-industry (vertical) spillovers vary with the degree of foreign control. Using a sample of manufacturing firms from six European countries, we find that higher presence of MNEs in the domestic market makes domestic firms to charge lower mark-ups. Only majority and wholly-owned MNEs generate statistically significant horizontal spillovers. The economic size of these spillovers is low. We also detect backward spillovers from MNEs in downstream industries. However, forward spillovers from MNEs in upstream industries are negative. When we control for absorptive capacity, direct linkages with MNEs, scope of product differentiation and geographical proximity, the economic size of AG increases substantially.

Keywords: MNEs; Foreign ownership; Spillovers; Market Share; Agglomeration Gains; Mark-up; Total Factor Productivity (search for similar items in EconPapers)
JEL-codes: D23 D4 F14 F23 (search for similar items in EconPapers)
Date: 2020-05-17
New Economics Papers: this item is included in nep-com, nep-cse, nep-eff, nep-int and nep-tid
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