Does the Same FDI Fit All? How Competition and Affiliates Characteristics Affect Parents’ Productivity

This paper investigates the heterogeneity within the group of foreign direct investors by analyzing the relation between parents’ productivity, the degree of domestic competition and the characteristics of their affiliates. Our results show that there is no unique recipe. Foreign direct investors may benefit differently depending on the economic environment in which they operate. Building an original 10-year panel dataset of Italian investors, we find that larger manufacturing parents tend to have more, larger and more productive affiliates in a higher number of destinations as well as being more productive in terms of total factor productivity. Having affiliates in high income countries or in both high and low income countries is associated with a productivity premium vis-à-vis investors in low income countries. Parent sector characteristics such as technology and degree of competition are also associated with productivity in a non-monotonic way. Low income country investors are found to be relatively more productive when operating in more competitive low technology sectors, while the opposite holds true for high income country investors, which become more productive when operating in less competitive high technology sectors.