Former Foreign Affiliates: Cast Out and Outperformed?

32 Pages Posted: 12 Aug 2014

See all articles by Beata Smarzynska Javorcik

Beata Smarzynska Javorcik

University of Oxford - Department of Economics; World Bank - Development Research Group (DECRG); Centre for Economic Policy Research (CEPR)

Steven Poelhekke

University of Auckland

Multiple version iconThere are 3 versions of this paper

Date Written: August 11, 2014

Abstract

The literature has documented a positive effect of foreign ownership on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we focus on divestments, that is, foreign affiliates that are sold to local owners. To establish a causal effect of the ownership change we combine a difference-in-differences approach with propensity score matching. We use plant-level panel data from the Indonesian Census of Manufacturing covering the period 1990-2009. We consider 157 cases of divestment, where a large set of plant characteristics is available two years before and three years after the ownership change and for which observationally similar control plants exist. The results indicate that divestment is associated with a drop in total factor productivity accompanied by a decline in output, markups as well as export and import intensity. The findings are consistent with the benefits of foreign ownership being driven by continuous supply of headquarter services from the foreign parent.

Keywords: divestment, foreign direct investment, Indonesia, productivity

JEL Classification: F23

Suggested Citation

Javorcik, Beata Smarzynska and Poelhekke, Steven, Former Foreign Affiliates: Cast Out and Outperformed? (August 11, 2014). De Nederlandsche Bank Working Paper No. 435, Available at SSRN: https://ssrn.com/abstract=2479202 or http://dx.doi.org/10.2139/ssrn.2479202

Beata Smarzynska Javorcik (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford
United Kingdom

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-8485 (Phone)
202-522-1159 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/bjavorcik

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Steven Poelhekke

University of Auckland ( email )

Auckland
New Zealand

HOME PAGE: http://https://sites.google.com/site/stevenpoelhekke/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
59
Abstract Views
611
Rank
327,606
PlumX Metrics