Ruhr Economic Papers

Ruhr Economic Papers #193

Home Firm Performance after Foreign Investments and Divestitures

by Dirk Engel and Vivien Procher

RWI, RGS Econ, 06/2010, 31 S./p., 8 Euro, ISBN 978-3-86788-217-0

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Abstract

‘Being international’ has nearly become an undisputed aim for firms in a globalized world. Several papers find a positive relationship between foreign direct investment (FDI) and the home performance of firms. In this paper we address the “FDI – export” relationship to better understand this pattern. Furthermore, by presenting first results on firm’s post-divestiture employment growth at home we are able to provide a more comprehensive view on fi rm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference-in-difference estimator to analyze the performance dynamics of French firms that invested abroad or carried out foreign divestitures during the period 2000-2007. FDI has on average a positive home firm eff ect in terms of export share, operating turnover and employment. Industry differences reveal that firms in high-tech industries experience a strong increase in their home performance, whereas firm performance in low-tech industries increases only moderately in post-investment periods. In contrast, the divestiture impact on the post-divestiture performance is rather negligible.

JEL-Classification: F21, F23, D21, L25

Keywords: Foreign markets; entry and exit; firm performance

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