Firm Productivity and Foreign Direct Investment into Non-core Activities

As foreign direct investment (FDI) often originates from multinational enterprises (MNEs) with non-core activities and not single-product firms, as MNE theory typically suggests, we hypothesize that such firms are more productive than MNEs without non-core activities as well as non-MNE firms. We test this hypothesis using Kolmogorov-Smirnov stochastic dominance Tests and Japanese firm-level productivity and FDI data for the period 1985-2001. We find that both manufacturing and service multinational firms with non-core foreign investments stochastically dominate firms without non-core activities. We also find cost-complementarities between certain core and non-core FDI activities that span both manufacturing and service affiliates.