Multinationals run more productive plants, Statistics Canada finds

Canadian plants with an international orientation are just as competitive with foreign-owned plants

Manufacturing plants in Canada that are foreign-owned not only tend to be more productive and innovative than plants owned domestically, they also contributed more than their share to Canada’s labour productivity growth in the past two decades, researchers say.

A paper by two Statistics Canada researchers, John Baldwin and Wulong Gu, found foreign-owned plants have higher pay, a higher share of non-production workers, greater use of advanced technology, higher levels of research and development and more innovation.

“There has long been a debate about the role of foreign enterprises in the Canadian economy, and the extent to which the Canadian economy is better off or worse off for them,” says Baldwin.

“We have produced a few pieces in the past that suggest that, at least when it comes to productivity, these firms didn’t do too badly. This paper is a more comprehensive look at that, and confirmed and elaborated upon the theme with the finding that not only did they not do too badly, they actually contributed more than their fair share to the total growth of labour productivity.”

Drawing on data from the Annual Survey of Manufactures and the Survey of Innovation and Advanced Technology, the researchers looked at some 2,000 plants across 230 industries in manufacturing.

They found that plants controlled by United States-based multinationals and other foreign companies were respectively 60 per cent and 50 per cent more productive than domestic-controlled plants. When controlled for difference in size, capital intensity and mix of production and non-production workers, foreign-controlled plants were still 12 per cent more productive.

However, the researchers also found that Canadian plants that had an international orientation were just as competitive with foreign-owned plants in all aspects. Canadian multinational enterprises, as they were called in the study, had similar levels of labour productivity as foreign-owned plants and paid similar wages to production workers and non-production workers as their foreign counterparts.

When it came to research and development and innovation, however, the researchers found that Canadian multinationals performed slightly better than other multinationals.

The average wage of workers at multinational enterprises (MNEs) in general was about 12 per cent higher than that at non-MNEs. The difference is even greater for production workers, who earned 15 per cent more at MNEs than at non-MNEs.

Citing an oft-heard argument that Canadian businesses lag behind foreign businesses in innovation, the researchers wrote, “Our finding suggests that the innovation gap reflects the poor innovation performance of domestically oriented firms in Canada. There is no evidence to suggest that Canadian firms with an international orientation have an innovation gap relative to foreign (multinational enterprises) operating in Canada.”

The paper was published as part of Statistics Canada’s research paper series, The Canadian Economy In Transition. Upcoming papers will look at the productivity gap between Canada and the United States. Earlier research papers in the series have looked at the growth of knowledge-work occupations, the level of training in high-tech workplaces, as well as the link between investment in information and communication technologies and firm performance.

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