The effect of foreign direct investment on firm labor productivity: Does the country of origin of the FDI matter?

Abstract

Many papers have analyzed the effects of foreign acquisition on firm productivity, articulating its positive impacts. However, an important issue remains: is there a general foreign acquisition effect, or is there any heterogeneity in the effects? This paper reports on the analysis of over 3,400 majority foreign acquisitions in Hungary. The main result (which exists in a propensity score matching sample as well) of the difference-in-differences analysis is that only acquirers from higher income countries foster labor productivity significantly – and this effect increases with the income gap between Hungary and the country of origin –, while acquirers from lower income countries do not induce statistically significant effects.