Multinational Firms and the Urban-Rural Productivity Gap

Abstract: This paper analyses the multinational productivity premium and its variation between urban and rural areas. Using administrative data for Germany, we confirm previous research findings that multinational firms are more productive than their national counterparts. Additionally, we identify an urban productivity premium for national firms and a previously unexplored rural productivity premium for multinational firms. Employing a two-stage treatment effects estimator, we show a positive causal effect of foreign takeover on the productivity of German firms, which is more pronounced in rural than in urban areas. Finally, we identify local competition as a key factor in explaining the observed productivity patterns. Stronger competition potentially increases the negative effects of outgoing knowledge spillovers on foreign technology leaders, making rural locations an attractive choice for them.