Innovation, employment growth, and foreign ownership of firms: A European perspective

This paper examines how foreign-owned and domestically owned firms transform innovation into employment growth. The empirical analysis, based on the model of Harrison et al. (2008) and CIS data for 16 countries, reveals important differences between the two groups: Due to general productivity increases and process innovation, foreign-owned firms experience higher job losses than domestically owned firms. At the same time, employment-creating effects of product innovation are larger for foreignowned firms. Together with employment-stimulating effects stemming from existing products, they overcompensate the negative displacement effects resulting in net employment growth in foreignowned firms. However, net employment growth turns out to be smaller in foreign-owned firms than in domestically owned firms.