Performance of Foreign and Local Firms in Pakistan: A Comparison

Abstract

There is a little doubt in the argument that foreign-owned (henceforth foreign) fIrms are more productive than local fIrms in less-developed countries because the former use more capital-intensive techniques, employ more qualifIed workers, and are able to reap the economies of scale [see Blomstrom (1988); Chudnovsky (1979) and Willmore (1986)]. Such arguments, however, do not ascertain whether effIciency of foreign fIrms is due to any ownership-specifIc advantage or to other factors such as industrial distribution (product mix), size of the fIrm, capital intensity, skill intensity, market concentration, and export orientation. To arrive at some conclusive empirical verifIcation concerning the labour productivity differences between foreign and local firms, it is essential to take into account the difference between capital intensity and skill intensity, etc., and control the size and products of fIrms. Most of the previous studies are aggregative and failed to control for differences in size or type of products. Moreover, the previous studies considered only a few aspects of performance.