There are more foreign firms than we think!

a column by Sara McGaughey and Pascalis Raimondos for VOX: CEPR’s Policy Portal

Researchers and policymakers often refer to ‘foreign firms’, but how do we define a firm as ‘foreign’ and does it matter for our policy conclusions?

This column argues due to the dominant practice of using only direct ownership links to identify the owners of a firm, the commonly used definition of a foreign firm captures only half of the foreign firms that exist. Indirect ownership link turns out to be pivotal for identifying firms that appear to be domestic but are in reality foreign, with implications for the measurement of FDI productivity spillovers.

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