Do Exporters Have Anything to Learn from Foreign Multinationals?

Using recent data on propensity-score matched firms from the U.K manufacturing industry, the paper uncovers evidence that acquisition FDI is an important channel of direct technology transfer from foreign multinationals to domestic exporters. This is consistent with the recently developed theory by Helpman, Melitz and Yeaple (2002) which, because of sunk costs, predicts firms engaged in FDI activity are more productive than those serving foreign markets through arms-length exporting. This finding also lends support to policy makers’ intervention to attract inward investment, often with the use of substantially more public funds than are devoted to encouraging domestic firms to export.