(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
Foreign direct investment raises productivity by introducing new technologies into domestic economies. To ensure their newly introduced technologies are used to their maximum potential, foreign investors also invest in relevant skills training for domestic workers. This complementary effect between the technology and skills that foreign direct investments generate is one reason why foreign-owned firms tend to display higher productivity levels than their locally owned counterparts.
Such is the case in Spain, as European economists Michael Koch and Marcel Smolka have found. In their working paper, they analyzed data on the ownership structure and productivity levels of 3,330 Spanish manufacturing firms from 1998 to 2013. They found that foreign-owned firms were 15 percent more productive than locally owned firms. They also found evidence that foreign-owned firms invested more in skills training.