# 13-058/IV (2013-04-11)

Author(s)
Christian Fons-Rosen, Universitat Pompeu Fabra and Barcelona Graduate School of Economics; Sebnem Kalemli-Ozcan, University of Maryland, CEPR, and NBER; Bent E. Sorensen, University of Houston and CEPR; Carolina Villegas-Sanchez, ESADE - Universitat Ramon Llull; Vadym Volosovych, Erasmus University Rotterdam and ERIM Research Institute of Management
Keywords:
Multinationals, FDI, Knowledge Spillovers, Selection, Productivity
JEL codes:
E32, F15, F36, O16

We quantify the causal effect of foreign investment on total factor productivity (TFP) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small.