OUTWARD FDI AND HOME-COUNTRY PERFORMANCE: EVIDENCE FROM ITALIAN MANUFACTURING AND SERVICE FIRMS

How does outward foreign direct investment (FDI) affect employment and productivity growth in the home country? Does the impact of outward investment differ among manufacturing and service sectors? In this paper, we analyze the effects of investing abroad using firm-level data for Italy in the period 2003-2006. We adopt matching techniques in combination with a difference in difference estimator in order to investigate the causal effect on domestic employment and productivity of becoming multinational. Preliminary results suggest that, on average, Italian outward FDI has limited effects on the domestic employment and performance of internationalizing firms. However, results differ significantly according to the sector (manufacturing versus services) in which the MNEs operate. In particular, we find that whereas in the manufacturing sector, outward FDI tends to strengthen both productivity and to a lesser extent employment, in the service sector there is a negative effect on both employment (two years after the investment) and productivity.