In the late 1990s, foreign ownership grew quite dramatically in th Swedish business sector raising concerns in the public debate for what would happen to R&D and other high-skilled activities in Sweden. Using Swedish micro data, this report studies the impact of foreign acquisitions on both smaller and larger firms and finds no evidence for the worries circulating in the debate.

Research and development (R&D) is considered to be of strategic importance for promoting growth and employment as well as increasing access to new knowledge and technology within the country. In the late 1990s, foreign ownership grew quite dramatically in the Swedish business sector, and some flagship Swedish multinational enterprises (MNEs) – such as Volvo Cars and Astra – were acquired by foreign enterprises. This development raised concerns in the public debate for what would happen to R&D and other high-skilled activities in Sweden.

Using Swedish micro data, we find no evidence for the worries circulating in the debate that foreign acquisitions lead to reductions in R&D expenditures and high-skilled activities in targeted domestic firms, neither in MNEs nor in non-MNEs.

Previous studies have only focused on larger firms, but for this report we were able to also study the impact of foreign acquisitions on smaller firms (fewer than 50 employees) in addition to larger firms with 50+ employees. This is important because 90 percent of the firms acquired by foreigners have fewer than 50 employees. For this group of smaller firms, there is no information on R&D, but through the Swedish register of educational attainment we have data on the share of high-skilled labour in all Swedish firms irrespective of size.

Interestingly, we provide evidence that among smaller firms foreigners tend to acquire highly productive, skill-intensive firms (cherry-picking). Also, we find that foreign takeovers have a clearly positive effect on the share of high-skilled labour in small non-MNEs. An explanation for this might be international technology transfers from foreign MNEs to small domestic non-MNEs. If the resulting technical change of such technology transfers in targeted firms is skill-biased, then the demand for skills increases and skill upgrading takes place in the acquired firms. In other words, foreign acquisitions seem to boost skill intensities, and probably the level of technology, in small, non-MNE acquired firms.

In sum, we conclude that there appears to be no reason to worry about the impact of foreign acquisitions on R&D and other high-skilled activities. Thus, there is no need for policymakers, due to that advanced activities might moving abroad, to consider restrictions on foreign ownership; if anything, there are reasons to welcome foreign acquisitions.