Foreign ownership, returns to scale and productivity: Evidence from UK manufacturing establishments

This paper calculates returns to scale and productivity growth (allowing for nonconstant returns to scale) in UK manufacturing establishments in the electronics and food industries. Our results show that foreign establishments tend to have lower returns to scale than their domestic counterparts. We also examine the effect of the acquisition of a domestic establishment by a foreign owner on returns to scale and productivity growth. We use a matching and difference-in-differences methodology which allows us to construct a reasonable counterfactual and to determine the postacquisition changes in RTS and productivity that can be attributed to the incidence of acquisition, rather than to changes in other external conditions. For establishments in the food sector we find a negative effect of acquisition on RTS and a positive effect on productivity. Domestic establishments in the electronics sector appear to increase their RTS but have lower productivity growth after having been acquired by a foreign firm.