Foreign investors, firm level productivity, and European economic integration

Abstract

Using a comprehensive sample of listed and unlisted firms from 34 European countries, we study firm-level manufacturing outcomes conditioned on foreign investment, country characteristics, and EU membership. Higher foreign ownership is associated with higher productivity but lower employment, particularly when the host or source country is an EU member and scores high on disclosure and investor protection, and low on corruption. We confirm our interpretation using staggered EU accession dates and industry-level external financial dependence interacted with a financial crisis. The subset of Eastern European countries appears to benefit from foreign investment and EU accession without losing jobs. Nevertheless, manufacturing outcomes associated with survey findings on public sentiment towards globalization and migration confirm the social and political costs of globalization.