Selection, learning, and productivity at the firm level: Evidence from Canadian outward FDI

Abstract

The superior productivity performance of outward foreign direct investment (FDI) firms is attributable to both ex ante advantages gained within the home market and ex post learning, which emanates from MNE experiences in host markets. Learning is modeled as a function of firm-level R&D efforts, absorptive capacity, and host-country characteristics. Using a firm-level panel database on all firms in Canada, a large-scale econometric analysis is undertaken to show that the host-country environment is central to MNE learning. We also quantify results in the extant literature on the share of the superior productivity exhibited by FDI firms into that which emanates from the home market, and that which is linked to ex post learning, finding 79% attributable to the selection effect, and 21% to the learning effect. The implications of these results are that, since productivity is endogenous to FDI, firms which are below a threshold level required to be successful internationally ex ante can nevertheless succeed if learning can move these MNEs above the required threshold for success ex post. As such, this research provides insights into strategies and host-country environments which lead to ex post productivity improvements for firms undertaking outward FDI, and hence informs the FDI decision at the firm level.

Résumé

Les performances supérieures en matière de productivité des IDE sortants des entreprises sont attribuables à la fois aux avantages ex ante obtenus sur le marché d’origine et à l’apprentissage ex post, qui émane des expériences des EMN sur les marchés d’accueil. L’apprentissage est modélisé en fonction des efforts de R&D au niveau de l’entreprise, de la capacité d’absorption et des caractéristiques du pays d’accueil. En utilisant une base de données de panel d’entreprises sur toutes les firmes du Canada, une analyse économétrique à grande échelle est effectuée pour montrer que l’environnement du pays d’accueil est au centre de l’apprentissage des EMN. Nous quantifions également les résultats dans la littérature existante sur la part de la productivité supérieure affichée par des entreprises effectuant des IDE qui émane du marché d’origine, et celle qui est liée à l’apprentissage ex post, en trouvant 79% attribuable à l’effet de sélection et 21% à l’effet d’apprentissage. Les implications de ces résultats sont que, puisque la productivité est endogène aux IDE, les entreprises qui se situent en dessous d’un seuil requis pour réussir ex ante au niveau international peuvent néanmoins réussir si l’apprentissage peut faire passer ces EMN au-dessus du seuil requis pour la réussite ex post. En tant que telle, cette recherche fournit des éclairages sur les stratégies et les environnements des pays d’accueil qui conduisent à des améliorations de la productivité ex post pour les entreprises qui entreprennent des IDE sortants, et donc éclaire la décision d’IDE au niveau d’une entreprise.

Resumen

El desempeño superior de la productividad de las empresas de inversión extranjera saliente es atribuible a tanto las ventajas ex ante ganadas en el mercado de origen como el aprendizaje ex post, el cual emana de las experiencias de las empresas multinacionales en mercados anfitriones. El aprendizaje es moldeado en función de los esfuerzos de I + D a nivel de las empresas, la capacidad de absorción, y las características el país anfitrión. Usando una base de datos de panel a nivel de las empresas de todas las empresas en Canadá, un análisis econométrico de gran escala es llevado a cabo para mostrar que el entorno del país anfitrión es central para el aprendizaje de la las empresas multinacionales. También cuantificamos los resultados en la literatura existente en la proporción de la productividad superior demostrada por las empresas de inversión extranjera en lo que emana del mercado interno, y la cual se vincula al aprendizaje posterior, encontrando que el 79% atribuible al efecto de selección, y 21% al efecto de aprendizaje. Las implicaciones de estos resultados son que, desde que la productividad es endógena a la inversión extranjera directa, las empresas que están por debajo del umbral requerido para ser exitosas internacionalmente ex ante pueden sin embargo tener éxitos si el aprendizaje puede mover a estas empresas multinacionales por encima del umbral requerido para el éxito ex post. Como tal, esta inversión provee información sobre las estrategias y los entornos del país anfitrión la cual lleva a mejoras ex post de la productividad para las empresas que llevan a cabo inversión extranjera directa saliente, y por lo tanto informa la decisión de inversión extranjera directa, a nivel de la empresa.

Resumo

O superior desempenho em produtividade de empresas de FDI externo é devido a vantagens ex ante obtidas no mercado doméstico e aprendizagem ex post, que emana de experiências da MNE em mercados hospedeiros. Aprendizado é modelado como uma função de esforços de R&D no nível da empresa, da capacidade de absorção e das características do país anfitrião. Utilizando um banco de dados em painel no nível da empresa de todas as empresas no Canadá, é realizada uma análise econométrica em larga escala para mostrar que o ambiente do país anfitrião é central para o aprendizado de MNE. Também quantificamos resultados na literatura existente sobre a parcela da produtividade superior exibida por empresas de FDI que emana do mercado doméstico, e a que está vinculada à aprendizagem ex post, encontrando 79% atribuíveis ao efeito de seleção, e 21% ao efeito de aprendizagem. As implicações desses resultados são que, como a produtividade é endógena ao FDI, empresas que estão abaixo de um nível mínimo exigido para serem bem-sucedidas internacionalmente ex ante podem, no entanto, ter sucesso se a aprendizagem puder mover essas MNEs acima desse nível necessário para o sucesso ex post. Como tal, esta pesquisa fornece insights sobre estratégias e ambientes do país anfitrião que levam a melhorias de produtividade ex post para empresas que realizam FDI externo e, portanto, aconselha sobre a decisão sobre FDI, no nível da empresa.

摘要

对外直接投资 (FDI) 公司出色的生产力业绩既可归功于本国市场获得的事前优势, 也可归功于跨国公司 (MNE) 在东道国市场的经历所带来的事后学习。学习被建模为企业层面研发努力、吸收能力和所在国特征的函数。使用加拿大所有公司的公司级面板数据库, 大规模的计量经济学分析得以进行, 以显示东道国的环境对MNE学习至关重要。我们还量化了现有文献中关于FDI公司所表现出的卓越生产力所占份额的结果, 这些份额来自本土市场, 以及与事后学习相关, 发现有79%是选择效应, 21 %是学习效应。这些发现的启示是, 由于生产力是FDI的内生因素, 因此, 如果学习能够使这些MNE事后提高到成功所要求的门槛之上, 那么事前在国际上取得成功所需的门槛水平以下的公司仍可以成功。因此, 这项研究提供了对战略和东道国环境的见解, 这些战略和东道国环境可为进行对外FDI的企业提高事后生产率, 从而为企业层面的FDI决策提供依据。

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Acknowledgments

We would like to acknowledge the helpful comments and suggestions from seminar participants at the Rotman School of Management, Industry Canada, the annual meetings of the Academy of International Business, and the Canadian Economics Association. We would also like to acknowledge comments from Bernardo Blum, Danny Leung, Larry Shute, Pierre Therrien, Daniel Trefler, three anonymous reviewers, and the JIBS Area Editor, Ilan Vertinsky. The financial support of Government of Canada is acknowledged.

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Accepted by Ilan Vertinsky, Area Editor, 5 May 2020. This article has been with the authors for five revisions.

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Hejazi, W., Tang, J. & Wang, W. Selection, learning, and productivity at the firm level: Evidence from Canadian outward FDI. J Int Bus Stud 52, 306–320 (2021). https://doi.org/10.1057/s41267-020-00343-9

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Keywords

  • foreign direct investment
  • productivity
  • organizational learning
  • MNEs and economic growth
  • Canada