Outward foreign direct investment and technical efficiency: Evidence from Taiwan's manufacturing firms

This paper uses firm-level panel data from Taiwan’s manufacturing industries from 1987 to 2000 to investigate the impact of outward foreign direct investment (OFDI) on the technical efficiency of the OFDI firms. Propensity score matching is used to construct an appropriate group of non-OFDI firms to compare with OFDI firms, and a metafrontier framework is subsequently used to calculate comparable technical efficiencies for both groups of firms. Our empirical results reveal that the technical efficiencies of Taiwan’s manufacturing firms were increasing over the entire sample period. In addition, our results suggest that the technological advances and the technical efficiency of Taiwan’s manufacturing firms are positively correlated with their OFDI activity. 2013 Elsevier Inc. All rights reserved. * Corresponding author. Tel.: +886 2 29387515. E-mail addresses: [email protected] (S.-F. Yang), [email protected] (K.-M. Chen), [email protected] (T.-H. Huang). 1 See Chen, Rau, and Lin (2006) and Lin, Chen, and Rau (2010) for recent evidence about the determinants of Taiwan’s outward FDI. 2 Caves (1996) provides a comprehensive survey of earlier literature about the determinants of multinational enterprises and their impacts. Lipsey (2002) and Kokko (2006) are two recent surveys about the home country effects of FDI.