Outward Foreign Direct Investment, Restructuring and Performance Upgrading: Firm-level Evidence from Portugal

Abstract

This article assesses the causal relationship between outward foreign direct investment (FDI) and various sides of firm performance, using micro data from Portuguese manufacturing firms during 2006–2014. To control for the possible endogeneity of outward FDI strategies, propensity score matching is combined with difference-in-difference approach. Our analysis shows that the learning effects for parent firms in Portuguese manufacturing depend on the underlying outward FDI strategy. The findings suggest that outward FDI could contribute to enhance firms’ productivity and their scale of operations. However, those learning effects seem to be mostly visible when firms engage in vertical outward FDI. Further, outward FDI, vertical or horizontal, appears to enhance the integration of Portuguese firms into the global economy through increased export intensity. From a managerial and policy perspective, the findings support the argument that outward FDI can indeed be at root of upgrading performance and firm’s restructuring in a small, open and peripheral economy such as Portugal.

Dynamic interaction between outward foreign direct investment and home country industrial upgrading: Regional differences in China

“…They find that both exploratory and developmental OFDI have a promoting effect on the enterprise performance but also identifies that the positive effects of exploratory OFDI last longer than the developmental ones. Barbosa (2020), use the propensity score matching and DID method to evaluate OFDI restructuring and corporate performance improvement based on the micro data of Portuguese manufacturing companies for 2006-2014. The results show the learning effect of Portuguese manufacturing parent companies depending on the potential OFDI strategies and suggest that OFDI can indeed become the source of performance improvement and corporate restructuring in small, open peripheral economies, such as Portugal.…”