Regional productivity effects of multinational firm affiliates

Multinational firms (MNFs) have been shown to have a set of defining characteristics. Compared to domestic firms, they have a larger fraction of skilled workers, higher R&D to sales ratios and established networks to knowledge sources in several different countries. As illustrated by the so-called ‘anchor-tenant’ hypothesis, they can be described as “knowledge spillover agents”. MNF affiliates, as defined in this paper, are firms that are part of large domestic and foreign MNFs. In this paper we test whether the local presence of MNF affiliates generate spillover effects on the local industry. The empirical analysis focuses on assessing whether the productivity of the regional manufacturing industry of non-affiliated firms is higher in regions with a large fraction of MNF affiliates. The analysis uses data on Swedish firms and is conducted on regional level as well as on firm level. The regressions show that local presence of MNFs in a region has a positive effect on Gross Regional Product (GRP) from non-MNFs. The paper also shows that regions where the low-productive non-MNFs are located appear to benefit the most from local presence of MNFs. The MNFs have, on the other hand, no effect on non-MNF productivity in regions where the high-productive non-MNFs are located.