Outward Foreign Direct Investment and Technical Efficiency: Evidence from Taiwan`s Manufacturing Firms

Abstract

This paper investigates the impact of outward foreign direct investment (OFDI) on the technical efficiency of the investing firms. A metafrontier framework is adopted to calculate the comparable technical efficiency for both OFDI firms and non-OFDI firms, operating under different technologies. Employing firm-level panel data on Taiwan’s manufacturing firms covering 1987-2000 and using propensity score matching method to construct an appropriate comparison group, our empirical results reveal that the OFDI activity tends to be beneficial to the technical efficiency of the investing firms. However, they also suggest that the OFDI firms have suffered technological regress after investing abroad.