The pervasiveness of large and persistent productivity differences across firms
within narrowly defined industries is a well-established fact that continues to
intrigue researchers (see surveys by Syverson 2011; Ichniowski and Shaw forthcoming).
One salient example that has attracted much attention in several different
fields is that multinational subsidiaries generally outperform domestic firms.1 Many
have argued that this is because multinationals transfer superior technologies and
organizational practices—in the form of new product and process innovation—to
their foreign subsidiaries.2 However, since the most prevalent form of multinational
entry is through acquisition (89 percent of FDI flows in developed countries—Barba
Navaretti and Venables 2004), rather than through greenfield investment, their superior
performance could be due to the selection of higher-performing domestic firms.
To date, little is know
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