The Degree of Internationalization and Firm Productivity: Empirical Evidence from Large Multinationals

Abstract

This paper examines whether the S-shaped and M-shaped hypotheses explain the internalization firm's productivity relationship. The internationalization-performance (I-P) literature uses accounting-based performance indicators in order to examine such a relationship. In contrast to the mainstream literature, productivity and its components (efficiency and technical change) are used as a firm's performance measures. Utilizing a semi-parametric model based on artificial neural network techniques, accounting for potential heterogeneity, firms' productivity, efficiency and technical change levels are estimated. The innovative methodological framework is applied in a sample of large, experienced non-financial firms over the period 1992-2019. The empirical evidence suggests that firms' internationalization in relation to their productivity and efficiency levels exhibits an inverted U-shaped relationship. This finding corresponds to the last two stages of the S-shaped and M-shaped hypotheses. Furthermore, the evidence suggests that internationalization has a positive nonlinear effect on firms' innovation capacity (technical change). Overall, the empirical findings from data-driven techniques applied, support the view that the effect of internationalization on firms' productivity levels is asymmetric.

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