Author Description

This paper assesses the contribution that foreign-controlled plants make to the Canadian manufacturing sector by examining both whether foreign-controlled producers exhibit superior performance and whether their productivity growth spills over to domestic plants. In the first section, the performance of foreign-controlled plants is compared with domestic-controlled plants, using a variety of measures that include value added & gross output per worker, research & development, and technology used. The paper then asks whether foreign-controlled plants differ from those domestic producers that have foreign operations. The third section starts by measuring the contribution of foreign multinational enterprises to labour productivity growth in the Canadian manufacturing sector, then compares the importance of the contribution made by foreign-controlled plants to productivity growth in the 1990s to their contribution in the 1980s. At issue here is whether the relative importance of Canada as a destination for foreign direct investment declined during the 1990s as a result of two free trade agreements. Finally, the paper examines the following: whether productivity growth of domestic producers is higher when the market share of foreign producers is larger; the existence of a subset of domestic plants that benefits more from spillovers originating in foreign-controlled plants; and the presence of two mechanisms that generate spillovers: enhanced competition and the more intense use of advanced technologies by domestic firms.