Foreign Control and Norwegian Manufacturing Performance

Abstract

The intangible asset theory of foreign direct investment holds that firms expand abroad to garner additional returns to intangible assets such as proprietary process or product technology or a strong reputation. I explore Norwegian manufacturing data for evidence that foreign owners are realizing returns to intangible assets. Foreign owners of Norwegian manufacturing establishments are clustered in industries that rely on such assets and, within narrowly-defined industries, differ from their domestic counterparts by being larger and using physical and human capital more intensively. My finding that foreign-owned establishments are approximately 2% more productive than their domestic counterparts is suspect evidence for the intangible assets theory because it relies crucially on the accuracy of the estimate of the scale elasticity, and such estimates are subject to well-known omitted variables and errors-in-variables biases. I show how the foreign ownership advantage varies with alternative assumptions about economies of scale, and find that under reasonable assumptions about scale economies it disappears. I conclude that foreign-owned establishments are larger and more productive, but cannot yet sort out the relationships between size, foreign-ownership, and productivity. I find that those establishments acquired by foreigners tend to be of average productivity and above-average size, but find no evidence that acquisition leads to a productivity improvement. In addition, I find that aggregating rented and owned capital in a capital services measure does not significantly affect the productivity comparison.