Foreign Acquisition and Employment Effect in Swedish Manufacturing By

Sweden has witnessed a dramatic increase of inward FDI during the 1990’s that has no correspondence in earlier years. This development has raised many questions on the effects on pro competitive effects, the labor market and welfare issues. This study analyzes the effects on labor demand in firms acquired by foreign investors. Recent literature has shown that it is important to study the counterfactual outcome, i.e. what would the outcome be had the domestic firm never been acquired? The analysis is based on a panel of Swedish firm level data. In order to isolate the causal effects due to a takeover a propensity score matching estimator is applied to compare similar treated and untreated firms. The difference-in-difference estimations with firm fixed effect show that there is a positive effect of foreign acquisition on total employment. Separating between skilled and unskilled labor the effect of foreign acquisition on the former seems to bee more pronounced. Moreover, this effect seems to occur immediately on skilled labor but starts between 3-4 years post acquisition on unskilled labor. Finally, we control for previous international experience. Our findings suggest that the effect on the labor demand is only in domestic non-MNEs acquired by foreign investors, suggesting that domestic MNEs already are very similar to foreign MNEs