FDI Productivity Premium and Foreign Affiliates Heterogeneity: A Comparison between Advanced and Emerging Market Overseas Investments in the EU

This paper aims to investigate the existence of productivity heterogeneity among foreign-owned firms (FOFs) based in the European Union (EU). Using firm-level data for a sample of FOFs investing in the EU over the period 2006-2014, we find that foreign affiliates from advanced countries (AFOFs) show a positive productivity gap compared to foreign affiliates from emerging countries (EFOFs). However, when we consider the type and the motivation of FDI, our results reveal that, while AFOFs always seem to be more productive than EFOFs in manufacturing sectors, EFOFs appear to enjoy a productivity premium compared to AFOFs in the services, when their activity occurs in the same industry as their parent and they operate in less knowledge-intensive market sectors.