Employment and Productivity Effects of Tax Haven Fdi

Abstract: I use longitudinal data on more than 300,000 Ukrainian firms over the period 1999-2013, including more than 10,000 acquisitions by foreign investors, to study the extent to which tax haven ownership, compared with other sources of FDI, affects employment and firm productivity in the post-acquisition period. Controlling for a rich set of fixed effects and employing propensity score matching, I find that firms acquired by foreign investors experience on average boost employment 8-30 percent, labor productivity 10-16 percent and total factor productivity of 9-11percent relative to firms that stay domestic. The gap is much lower for firms acquired by investors from tax haven countries: using the most conservative specification that controls for firm specific fixed effects and growth trajectories, my results suggest that tax haven acquisitions leave employment unchanged, while productivity improvement is only 4-5 percent. My results suggest much that foreign investment from tax havens has lower effect on firm performance compared to effects of FDI from other foreign countries.