Multinational firms and FDI destinations: what explains the productivity gap?

This paper deals with the issue of the heterogeneity of productivity among three different groups of multinational firms according to where they invest. We use the procedure developed by Di Nardo et al (1996) and Melly (2005) to decompose the productivity gap across the entire productivity distribution in order to account for the relative importance of observed characteristics versus different returns. We find that the productivity gap suffered by firms that invest only in less developed countries is due to lower efficiency, not to worse characteristics. The most productive firms are those able to invest in both developed and less developed countries. They outperform firms investing only in one geographical area because of their better characteristics.