FDI from emerging markets and the productivity gap—An analysis on affiliates of BRICS EMNEs in Europe

• This paper analyses differences in productivity of EMNEs’ affiliates in Europe against their counterparts from developed countries and domestic MNEs.
• EMNEs at the bottom of the productivity ladder, with an average productivity gap around 30 percentage points.
• The gap between EMNEs’ affiliates and others is significantly larger in more sophisticated industries.
• Geographically, the gap appears to be relevant only for investments directed to Western Europe.

This paper analyses differences in productivity of foreign affiliates of emerging market multinationals (EMNEs) from the BRICS against their counterparts from developed countries and domestic MNEs. Based on a large database on foreign affiliates in Europe, results find EMNEs at the bottom of the productivity ladder, with an average productivity gap of around 30 percentage points compared to more established competitors. The paper also shows that this effect is not homogeneously distributed since it varies in terms of sectorial distribution and technology intensity of activities performed, as well as by geographic destination. Moreover, firms’ heterogeneity plays a key role given that productivity differentials are largely accounted for the least productive firms, while those at the top of the distribution tend to reach similar performances than their more established competitors, especially in services.