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Market Size and the Survival of Foreign-owned Firms

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  • Rod Falvey
  • David Greenaway
  • Zhihong Yu

Abstract

We develop a general equilibrium model with heterogeneous firms and Foreign Direct Investment (FDI) cost uncertainty and investigate the survival of foreign-owned firms. The survival probabilities of foreign-owned firms depend on firm-level characteristics such as productivity and host country characteristics such as market size. We show that a foreign-owned firm will be less likely to be shut down when its parent firm’s productivity is higher and its indigenous competitors are less productive. Whilst a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign-owned firms if their parent firms are sufficiently productive.

Suggested Citation

  • Rod Falvey & David Greenaway & Zhihong Yu, 2007. "Market Size and the Survival of Foreign-owned Firms," Discussion Papers 07/25, University of Nottingham, GEP.
    • Handle: RePEc:not:notgep:07/25
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    References listed on IDEAS

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    2. Haiwen Zhou, 2010. "Globalisation and the Size Distribution of Firms," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 84-94, March.

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