1. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Effects of Foreign Ownership on Innovation Activities: Empirical Evidence for 12 European Countries Martin Falk FIW Workshop Foreign Direct Investment, BMWA, March 7 th 2008

2. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation importance of foreign affiliates in industrial R&D varies across OECD countries Foreign-owned firms have a lower R&D intensity than domestically owned firms (see OECD 2003) multinational firms undertake most of their R&D activity at home relationship between innovation output and foreign ownership is not clear-cut Descriptive statistics: Foreign owned firms are more likely to introduce technological innovations and have higher share of innovative sales However, some part of the differences in innovation output between foreign affiliates and domestic firms may be due to a compositional effect =>simple comparisons are misleading

3. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation 78 72 66 56 49 45 42 40 35 27 26 25 20 17 16 14 7 5 4 0 10 20 30 40 50 60 70 80 90 Hungary Ireland Austria Belgium Czech Republic Sweden Australia United Kingdom Canada Netherlands Spain Germany Italy France Portugal Slovak Republic Poland Finland United States Turkey Greece Japan R&D expenditures of foreign affiliates in % of total business R&D

4. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation Percentage of innovating firms (Western European firms) 0.33 0.29 0.16 0.28 0.23 0.43 0.41 0.25 0.36 0.32 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 new products developed in- house new market products new production processes new production processes dev in-house domestic firms foreign owned Notes: # of obs: 18 000, weighted using sample weights; Source: CIS 3 data.

5. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation Percentage of innovating firms (Eastern European firms) 0.21 0.19 0.11 0.16 0.13 0.34 0.32 0.20 0.24 0.22 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 new products developed in- house new market products new production processes new production processes dev in-house domestic firms foreign owned Notes: # of obs: 10 000, weighted using sample weights; Source: CIS 3 data.

6. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation Share of new products/market novelties in % (means) (Western European firms) 0.261 0.104 0.222 0.095 0.00 0.05 0.10 0.15 0.20 0.25 0.30 share of turnover of new productsshare of turnover of new market products domestic firms foreign owned

7. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation share of new products/market novelties in % (means) (Eastern European firms) 0.116 0.052 0.142 0.066 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 share of turnover of new products share of turnover of new market products domestic firms foreign owned

8. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation

9. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Motivation und Outline Methods: –Probit estimates of the propensity to innovate –Share equations for turnover with market novelties and new products estimated by fractional logit estimator Outline: –Previous literature –Theoretical background –Empirical model –Data and descriptive statistics –Results –Conclusions

10. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Previous studies Previous studies of cross-country comparisons of determinants of innovative sales/introduction of new products –Griffith, Huergo, Mairesse and Peters (2006) for France, Germany, Spain and UK based on CIS 3 data (OXREP) –Mohnen, Mairesse and Dagenais (2007), for seven EU countries based on CIS 1 (distinction between low and tech ind.) (EINT) –Lööf, Heshmati, Asplund and Naas (2002) for Finland, Norway and Sweden bason CIS 2 –Lhuillery, Freitas, Miotti and De Negri (2007), for France, Switzerland and Spain and three Latin american countries

11. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Theoretical background Previous literature: CDM model with log of innovative sales or logit transformed innovative sales and mills ratio/ selection equation Innovation output is mainly determined by innovation input but elasticity is below 1: –Crépon, Duguet and Mairesse (1998): elasticities of the logarithm of turnover with new products with respect to R&D capital per employee between 0.12 and 0.46 –Griffith, Huergo, Mairesse and Peters (2006): impact of the predicted R&D intensity on the logit transformed share of market novelties is higher for Spain and France than that of UK and Germany

12. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Previous studies Effects of different types of innovation input activities –Types: internal R&D, external R&D, acquisition of new knowledge, acquisition of machinery, design, market introduction –Effects of different types of innovation activities are expected to differ across industries and between young and old firms –Impact of internal activities is higher in high-tech industries than in low/medium industries –Importance of non-R&D innovation activities is expected to be higher in services –internal R&D activities are more important for radical (i.e. new to the market) innovations than for incremental innovations (i.e. new to the firm)

13. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Previous studies Effects of different innovation sources –importance of external sources of information for innovation (Von Hippel 1998) –Firms benefit from customers and end users, lead user –knowledge potential of universities conferences, meetings and journals is more important in science- based and technology-oriented firms –knowledge spillovers from rivals are more valuable to less research–intensive firms (see Jovanovic and MacDonald, 1994)

14. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Previous studies Firm size –U-shaped relationship -> small firms and very large firms have a higher R&D and/or innovation intensity (Acs and Audretsch, 1988; Pavitt et al., 1987) Foreign ownership –foreign-owned firms are more likely to introduce new products and new production processes (Sadowski and Sadowski-Rasters, 2006; Frenz and Ietto-Gillies 2007 for the UK) –Foreign ownership effect should be more pronounced in NMS than in the EU15 countries Turnover increase due to M&A Firms most significant market: If firms market is international one can expect higher competition

15. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Empirical model I Probit equation for the propensity to innovate five different types of technological innovations: –introduction of new products –introduction of new products developed in-house –introduction of new market products –introduction of new production processes, –introduction of new production processes developed in-house

16. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Empirical model I Second step: fairlie technique that decomposes the foreign ownership difference into the characteristics effect and coefficient effect:

17. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Empirical model II Determinants of the share of new market products/market novelties

18. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Empirical model INQ innovation intensity for d nhist d, dummy variables for newly founded firms, M & A disclosure during the period gsize d, dummy variables for firm size lstrat d, dummy variables measuring the innovation strategy hmark d, geographical market ksources d, dummy variables on the intensity of usage of different innovation sources mco d, p d sec, country and sector dummy variables dummy variable for firms that are part of multinational firm with headquarter outside the home country

19. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Empirical model share of innovative sales is bounded between zero and 1 by definition Tobit model is not useful in our case because 0 and 1 values arises not because that the variable is unobservable; also logit transformation not useful Papke and Woolridge (1996) proposed the called fractional logit model Estimation method: quasi-maximum likelihood estimator, with heteroscedasticity robust asymptotic variance

20. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Empirical model Interpretation based on marginal effects Separate estimates for EU-West (i.e. BE, DE, ES, GR, NO, PT) and EU-East (i.e. CZ, EE, HU, LT, LV, SK)

21. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Data CIS 3 micro aggregated data, EUROSTAT Corrected version May 2007 (error in foreign ownership) –Share of foreign ownership correct data: 11% (old version 21%) Coverage –Belgium, Czech Republic, Estonia, Germany, Hungary, Norway, Spain, Greece, Lithuania, Latvia, Portugal and Slovakia Austria ist not included because Stat Austria refused to allow access to the data # of obs probit: 28,000 Number of obs. for the fractional logit model –EU East: 5000; EU West: 6400 Estimation sample for the fractional logit is restricted to firms with information on type of innovation activities Pure process innovators are excluded

22. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Descriptive Statistics 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 share of turnover new products firms with zero turnover of new products share of turnover market novelties firms with zero turnover of market novelties Innovation intensity WestEast

23. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 0.00 0.10 0.20 0.30 0.40 0.50 0.60 Newly founded firm turnover growth due to mergers... sales reduction due to disclosure foreign ownership Firms most sig. market: regional Firms most sig. market national Firms m sig. market intern firm size (0th to 25th) firm size (25th to 50th)firm size (50th to 75th) firm size (75th to 100th) East West Descriptive statistics

24. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Descriptive statistics 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 intramural R&D extramural R&D acquisition of machinery and equipment acquisition of other external knowledge Training market introduction of innovation design and other preparation West East

25. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 sample including Western European firms –Foreign ownership is marginally significant for new products developed in-house and new market products (effect 1.4 and 1.9 percentage points) sample including Eastern European firms –Foreign ownership is strongly significant for all types of technological innovations (effects: 3.4 and 4.5 percentage points) Sector, size, country dummy variables and dummy for exporters are all significant Fairlie decomposition of the foreign ownership effect on the propensity to innovate: –Western European firms: 90 % of the difference in innovativeness can be explained by different characteristics –Eastern European firms : Between half and two thirds of the difference in innovativeness between foreign and domestically- owned firms. Empirical results: probit estimates

26. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Probit estimates for Western European countries (marg. effects) dF/dxz z foreign-owned firm (yes/no)0.0141.680.0191.68 newly founded firm (yes/no)0.0402.470.0351.78 exporting (yes/no)0.0466.800.08510.09 turnover increase due to M&A (yes/no)0.0684.990.1005.83 turnover reduction due to closure (yes/no)-0.057-2.78-0.061-2.30 Firms most significant market (ref local): national market (yes/no)0.0669.140.12113.61 international market (yes/no)0.0999.950.16213.54 firm size dummy variables: firm size class turnover (25th to 50 th )0.0404.440.0544.95 firm size class turnover (51st to 75 th)0.0929.680.12711.25 firm size class turnover (76 th to 100 th)0.17817.190.27422.62 industry dummy variables (ref consumer man.) Mining & energy-0.081-5.25-0.124-6.28 Intermediate manufacturing0.0252.870.0222.00 Investment manufacturing0.0768.370.0928.27 Distributive trade-0.055-4.62-0.137-9.36 Transport & financial intermediation-0.035-3.30-0.064-4.95 Business services0.21615.920.23214.85 country dummy variablesyes new products dev. in-house market novelties

27. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Probit estimates for Eastern European countries (marg. effects) firm size class foreign- owned firm (yes/no) exporting (yes/no) turnover (25th to 50th) firm size turnover (51st to 7 th) firm size turnover (76 th to 100 th) new productsdF/dx0.0450.0720.0820.1690.316 z3.145.75.5111.0319.49 new products dev. in-housedF/dx0.0470.0680.0730.1630.303 z3.375.585.0210.8518.9 new market products dF/dx0.0450.0520.0440.0860.191 z4.195.473.736.9113.96 new production processes dF/dx0.0340.0450.0750.1670.316 z2.724.055.3411.4320.16 new production processes dev in-house dF/dx0.0390.0430.070.1480.286 z3.344.065.2410.5718.77

28. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Fairlie decomposition of the foreign ownership effect on the propensity to innovate

29. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 sample including Western European firms –Foreign ownership is not significant sample including Eastern European firms –Foreign ownership is strongly significant for both types (i.e new products and market novelties) Use of different innovation sources, innovation input/strategies are more important in achieving a high share of new products/market novelties Blinder-Oaxaca decomposition of the foreign ownership effect: –Eastern European firms : Difference in innovativeness is nit due tu differences in the characterisitcs Empirical results: share equations

30. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Results of the share equation: new products dF/dx az az foreign ownership0.0080.870.0242.73 innovation intensity0.2178.000.1334.43 newly founded firm0.0472.380.0482.66 turnover growth due to mergers & acquisitions 0.0201.450.0272.23 sales reduction due to closure-0.010-0.36-0.016-1.15 Firms most significant market: national market (ref. local) -0.004-0.470.0070.90 Firms most significant market: international market 0.0272.500.0303.58 firm size class turnover (25 th to 50 th ) -0.004-0.37-0.002-0.25 firm size class turnover (50 th to 75 th ) -0.038-3.62-0.018-2.20 firm size class turnover (75 th to 100 th ) -0.073-6.62-0.028-3.27 innovation sources yes Innovation strategy yes Country dummies yes Sector dummies yes Western European Eastern European

31. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Results of the share equation: market novelties

32. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 Results of the share equation: Blinder-Oaxaca decomposition

33. ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUTE OF ECONOMIC RESEARCH WIFOWIFO Wien 3, Arsenal, Objekt 20 A-1103 Wien, Postfach 91 P.O. BOX 91, A 1103 Vienna – Austria http://www.wifo.ac.at/ Tel. (+43 1) 798 26 01 0 Fax (+43 1) 798 93 86 relationship between foreign ownership and innovation activities using CIS 3 micro-aggregated data for 12 European countries. Probit estimates –New Member States: the probability to innovate is significantly higher for foreign- owned firms than for domestic firms –Western European: foreign ownership is only marginally significant. –differences in the percentage of innovating firms between foreign owned and domestic firms are mainly due to different characteristics Results for the share equation: –New Member States: foreign-owned firms are significantly more innovative than domestic firms. –overall difference in the share of innovative sales between foreign-owned and domestic firms is mainly due to differences in the coefficients =>pure effect Other significant determinants of innovation output: innovation strategy, innovation sources explanation: in the New Member States foreign-owned firms are younger than in West. EU countries => learning curve effect is inverted u-shaped? Conclusions