Investments abroad and performance at home : evidence from Italian multinationals

Foreign activities of MNEs have important effects on home economies. The debate is ambiguous: concerns that foreign investments deplete domestic economies are often coupled with the pride for doing good business in foreign countries. This paper addresses this question by defining the appropriate counterfactual: what would have happened to investing firms if they had not invested abroad? It applies propensity score matching to derive these hypothetical performance trajectories from a sample of national firms which have never invested abroad. For a sample of Italian firms, it finds that investments improve growth of total factor productivity and output. It also finds no significant effects on employment. These results support the view that foreign investments strengthen rather than deplete home activities.