Home Firm Performance After Foreign Investments and Divestitures

Authors

  • Dirk Engel,

    1. University of Applied Sciences Stralsund, Stralsund
    2. Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), Essen
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  • Vivien Procher

    1. Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), Essen
    2. Jackstädt Center of Entrepreneurship and Innovation Research, Schumpeter School of Business and Economics, University of Wuppertal, Wuppertal
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  • We would like to thank the anonymous referee who gave precise and helpful comments on an earlier version sent to The World Economy. Furthermore, we appreciated the comments and suggestions made by Christoph M. Schmidt. The financial support by the Ruhr Graduate School in Economics is gratefully acknowledged.

Abstract

An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the ‘FDI – export’ relationship to better understand this trend. Furthermore, by presenting results on firm's post-divestiture employment growth at home, we are able to provide a more comprehensive view on firm 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 analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000–2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high-tech industries experience a strong increase in their domestic 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.

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