Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

GEP Research Paper 08/39

Firm Heterogeneity and Choice of Ownership Structure: An Empirical Analysis of German FDI in India

Holger Görg, Verena Lauber, Birgit Meyer and Peter Nunnenkamp

Summary

We examine the role of firm-level heterogeneity when German MNEs decide on the share of ownership in affiliates in India. We combine two largely unnoticed firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates. We show that, most notably, the productivity of the German parents matters only for ownership shares in new affiliates.

Abstract

We contribute to the literature on the heterogeneity of multinational enterprises (MNEs) and the relevance of firm characteristics for analysing the determinants of outward foreign direct investment (FDI). The focus is on the role of firm-level heterogeneity when MNEs decide on the share of ownership in foreign affiliates. We combine two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates. The impact of firm characteristics on ownership shares is assessed in the context of OLS and fractional logic models, controlling for industry and location characteristics. We show that the effect of several characteristics differs between the establishment of new affiliates by German MNEs and their engagement in already existing Indian firms. Most notably, the productivity of the German parents matters only for ownership shares in new affiliates.

JEL classification: F23, L25

Keywords: multinational enterprises, firm characteristics, Indian locations, German FDI; ownership share

Issued in October 2008

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