Impact of Foreign Ownership on Total Factor Productivity: Evidence from Food, Tobacco and Financial Business Sectors of Pakistan

The paper investigates the impact of foreign ownership on total factorproductivity (TFP) for Food and Tobacco and Financial Business sectorsof Pakistan. Theoretical framework of Caves (1974) is estimated toexamine firm s productivity from foreign investment. Cobb-Douglasproduction function is estimated for each sector and then TFP isextracted from this function. Extracted TFP is regressed on set ofvariables including ownership dummies, foreign presence at sector leveland firm size by using Random Effects model. The study concludes thatforeign ownership has positive effect on TFP of both the sectors.However, the evidence for the impact of foreign presence at sector levelis mixed, Firm size negatively affects TFP. The study recommends theprovision of fiscal incentives to encourage research and developmentexpenditures, rationalizing of labour laws and lower corporate tax ratesto encourage joint ventures among foreign and domestic firm.