Foreign Ownership and Firm Productivity: Causality and Channels

Using data from a survey conducted by the World Bank in China, this paper shows that foreign ownership enhances firm productivity. We also find that only equity ownership from foreign firms can have such a positive impact, but not ownership from foreign institutional investors, banks, or individuals. Among the many possible channels, we find that the increased likelihood of trading with the rest of the world, transfer of technology, managerial skills and products are the potential channels through which foreign ownership exerts a positive impact on firm productivity.