Foreign Direct Investment, Source Country Heterogeneity and Management Practices

Abstract

This paper examines whether and, if so, why source country heterogeneity exists in foreign direct investment. Using detailed Swedish matched employer‐employee data for the period from 1996 to 2009, we find statistical evidence that affiliate performance differs systematically across source countries. We then show that differences in foreign multinational enterprises’ global management practices (estimated from the new firm‐level data from the World Management Survey) are an important determinant of productivity among foreign affiliates.

The role of management practices in acquisitions and the FDI location decision

“…This paper differentiates from the work by Heyman et al (2019) and contributes to the literature on international economics and management practices in two important aspects. First, the analysis accesses management practices measured at the parent level and assumes that management practices are transferred from parents to the affiliates and thereby improve affiliate productivity.…”

“…This section analyzes the association between parent management practices and affiliate employment and productivity post‐acquisition. Thereby, this study moves beyond source‐country fixed effects used in Heyman et al (2019). Indeed, as shown in Table A3 in the Online Appendix source‐country fixed effects can only explain up to 14% of the variation in management practices across firms.…”

“…They point out that the positive relationship between delegation and integration is mediated through management practices. The work perhaps most closely related to this paper is by Heyman et al (2019). They use WMS data to calculate management sourcecountry fixed effects and examine the impact of source-country management practices on productivity changes in foreign affiliates in Sweden as a FDI destination market.…”

The World Management Survey at 18: lessons and the way forward

“…At the frontier, multinational enterprises (MNE) face competition across the world and tend to have higher management scores everywhere they operate [Bloom et al, 2012b]. Further, Heyman et al [2019] finds that differences in MNE management are an important determinant of productivity among foreign affiliates. Bloom et al [2019a] show that multinational entry into US counties raises the management quality of local incumbent plants using "runner up" counties as a control group.…”

“…For example, andCornwell et al [2020] for Brazil,Bloom et al [2019a] for the US, andHeyman et al [2019] for Sweden.13Meagher [2013] use Bayesian techniques with WMS data from the UK, US, France and find that there is some convexity in this relationship for high scores.…”