Foreign subsidiaries performance and dynamics: a comparative analysis with domestic firms

Abstract

In this study we conduct a dynamic and comparative analysis showing evolutional differences between foreign and domestic firms, a topic particularly important when foreign direct investment has become more important to economic growth. In this study, we discuss the Portuguese experience and the comparative evolution of foreign subsidiaries and domestic firms during the period 1985-2005. We look in particular at issues of performance, human capital and dynamics. The research is based on a large scale panel data at firm level from the database ‘Quadros de Pessoal’ for the period 1985-2005. Our study expands over previous analyses conducted about Portugal with qualitative empirical data at firm level. From our knowledge, this is the first study with such a long time pan dimension. More than allowing for a comparative and static analysis, with this time horizon it is possible to investigate how the differences evolved over time. We found dissimilar progress trends in performance, human capital and dynamics. We discuss the implications of the findings and open prospects for future research. To study the quality of the foreign investments and its potential impact on the competitiveness of the host economy is clearly an important issue, especially in an economy with strong a challenge for convergence, and about which we still know very little on these issues. These analyses and empirical evidences are important to evaluate the efforts put in action in the last decades to attract FDI, and to open new lines of discussion and new policy measures.