Performance of Foreign and Local Firms in Pakistan: AComparison

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