Are foreign subsidiaries technologically superior to local firms? Evidence from Romania

This article examines whether foreign firms in Romania are technologically superior to domestic firms by separately estimating the technology related productivity differentials between domestic firms and international joint ventures, and between domestic firms and foreign wholly owned enterprises. When comparing domestic firms and international joint ventures, the estimation corrects for selection biases induced by the unobserved heterogeneity in domestic firms' knowledge of local markets. The estimation method is based on a simple theoretical model of a multinational enterprise's choice of entry mode in a developing country. Both types of foreign firms are found to exhibit a technological advantage in virtually all manufacturing sectors.