IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/618.html
   My bibliography  Save this paper

Does foreign direct investment crowd out domestic entrepreneurship?

Author

Listed:
  • Koen de Backer

Abstract

In analyzing firm entry and exit across Belgian manufacturing industries, this paper presents evidence that import competition and foreign direct investment discourage entry and stimulate exit of domestic entrepreneurs. These results are in line with theoretical occupational choice models that predict foreign direct investment would crowd out domestic entrepreneurs through their selections in product and labor markets. However, the empirical results also suggest that this crowding out effect may be moderated or even reversed in the long-run due to the long term positive effects of FDI on domestic entrpreneurship as a result of learning, demonstration, networking and linkage effects between foreign and domestic firms.

Suggested Citation

  • Koen de Backer, 2002. "Does foreign direct investment crowd out domestic entrepreneurship?," Economics Working Papers 618, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:618
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/618.pdf
    File Function: Whole Paper
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shapiro, Daniel & Khemani, R. S., 1987. "The determinants of entry and exit reconsidered," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 15-26, March.
    2. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 8, pages 101-133, Palgrave Macmillan.
    3. Morck, Randall & Yeung, Bernard, 1991. "Why Investors Value Multinationality," The Journal of Business, University of Chicago Press, vol. 64(2), pages 165-187, April.
    4. Johnson, Peter & Parker, Simon, 1994. "The Interrelationships between Births and Deaths," Small Business Economics, Springer, vol. 6(4), pages 283-290, August.
    5. Geroski, P. A. & Masson, R. T., 1987. "Dynamic market models in industrial organization," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 1-13, March.
    6. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-797, August.
    7. Oi, Walter Y, 1983. "Heterogeneous Firms and the Organization of Production," Economic Inquiry, Western Economic Association International, vol. 21(2), pages 147-171, April.
    8. JosÈ Mata & Pedro Portugal, 2004. "Patterns of Entry, Post-Entry Growth and Survival: A Comparison Between Domestic and Foreign Owned Firms," Small Business Economics, Springer, vol. 22(3_4), pages 283-298, April.
    9. Holger Görg & Eric Strobl, 2016. "Multinational companies and indigenous development: An empirical analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 17, pages 305-322, World Scientific Publishing Co. Pte. Ltd..
    10. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    11. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-321, May.
    12. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    13. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    14. repec:fth:michin:282 is not listed on IDEAS
    15. Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-783, November.
    16. Baldwin, John R. & Gorecki, Paul K., 1987. "Plant creation versus plant acquisition : The entry process in canadian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 27-41, March.
    17. Leo Sleuwaegen & Koen Backer, 2001. "Multinational firms, market integration, and trade structure: What remains of the standard-goods hypothesis?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 379-403, September.
    18. Carree, Martin & Thurik, Roy, 1994. "The Dynamics of Entry, Exit and Profitability: An Error Correction Approach for the Retail Industry," Small Business Economics, Springer, vol. 6(2), pages 107-116, April.
    19. Holger Görg & Eric Strobl, 2016. "Multinational Companies And Productivity Spillovers: A Meta-Analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 8, pages 145-161, World Scientific Publishing Co. Pte. Ltd..
    20. Steven Globerman, 1979. "Foreign Direct Investment and `Spillover' Efficiency Benefits in Canadian Manufacturing Industries," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 42-56, February.
    21. Grossman, Gene M, 1984. "International Trade, Foreign Investment, and the Formation of the Entrepreneurial Class," American Economic Review, American Economic Association, vol. 74(4), pages 605-614, September.
    22. Dunning, John H & Rugman, Alan M, 1985. "The Influence of Hymer's Dissertation on the Theory of Foreign Direct Investment," American Economic Review, American Economic Association, vol. 75(2), pages 228-232, May.
    23. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    24. Agarwal, Rajshree & Gort, Michael, 1996. "The Evolution of Markets and Entry, Exit and Survival of Firms," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 489-498, August.
    25. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    26. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    27. Mata, Jose, 1993. "Entry and type of entrant : Evidence from Portugal," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 101-122, March.
    28. James R. Markusen, 1998. "Multinational Firms, Location and Trade," The World Economy, Wiley Blackwell, vol. 21(6), pages 733-756, August.
    29. repec:bla:scandj:v:82:y:1980:i:4:p:437-48 is not listed on IDEAS
    30. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, April.
    31. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    32. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    33. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-873, September.
    34. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
    35. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc.
    36. Gorecki, Paul K, 1976. "The Determinants of Entry by Domestic and Foreign Enterprises in Canadian Manufacturing Industries: Some Comments and Empirical Results," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 485-488, November.
    37. Richard Baldwin, 1988. "Factor Market Barriers are Trade Barriers: Gains From Trade in 1992," NBER Working Papers 2656, National Bureau of Economic Research, Inc.
    38. Krugman, Paul & Venables, Anthony J, 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Taube, Markus, 2005. "Spillover-effects, crowding-in and the contributions of FDI to growth in China: A review of the literature," Duisburg Working Papers on East Asian Economic Studies 74, University Duisburg-Essen, Asia-Pacific Economic Research Institute (FIP).
    2. Jiangning Zhao & Bin Zhang, 2017. "Chintrepreneurship ¨C The China-way of Entrepreneurship Government Intervention, Seedling Approach ¨C A Network-based Model of Entrepreneurship," Management and Organizational Studies, Management and Organizational Studies, Sciedu Press, vol. 4(1), pages 30-66, January.
    3. Dalila Nicet-Chenaf & Eric Rougier, 2009. "FDI and growth: a new look at a still puzzling issue," Post-Print hal-00798473, HAL.
    4. Yang, Boqiong & Chen, Jianguo, 2011. "An empirical model of the environmental effect of FDI in host countries: Analysis based on Chinese panel data," IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth 3, Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
    5. Elisa Galeotti, 2009. "Do Domestic Firms Benefit from Geographical Proximity with Foreign Investors? Evidence from the Privatization of the Czech Glass Industry," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 026-047, March.
    6. Ousseini Hamadou, 2011. "The Impact of FDIs Flows on the Nigerien Economic Growth," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 2(2), pages 16-26, July.
    7. Alaya MAROUANE & Dalila NICET-CHENAF & Eric ROUGIER, 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GREThA (2007-2019) 2008-27, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 67-84, February.
    2. Holger Görg & Eric Strobl, 2016. "Multinational companies and indigenous development: An empirical analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 17, pages 305-322, World Scientific Publishing Co. Pte. Ltd..
    3. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(6), pages 1453-1495, December.
    4. Manjón-Antolín, Miguel C., 2010. "Firm size and short-term dynamics in aggregate entry and exit," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 464-476, September.
    5. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 16(3), pages 455-488, June.
    6. Marzieh Abolhassani & Seçil Hülya Danakol, 2019. "Wage and competition channels of foreign direct investment and new firm entry," Small Business Economics, Springer, vol. 53(4), pages 935-960, December.
    7. Geurts, Karen & Van Biesebroeck, Johannes, 2016. "Firm creation and post-entry dynamics of de novo entrants," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 59-104.
    8. Manjon, M.C., 2004. "Firm Size and Short-Term Dynamics in Aggregate Entry and Exit," Other publications TiSEM 2e3efce2-87b3-4b7a-aa83-7, Tilburg University, School of Economics and Management.
    9. Alessandro Arrighetti & Marco Vivarelli, 1999. "The Role of Innovation in the Postentry Performance of New Small Firms: Evidence from Italy," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 927-939, April.
    10. Blandina Oliveira & Adelino Fortunato, 2006. "Testing Gibrat's Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 65-81.
    11. Flores-Romero, Manuel G, 2004. "Survival Of The Small Firm And The Entrepreneur Under Demand And Efficiency Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 700, University of Warwick, Department of Economics.
    12. Mohammad Ali Jamali & Nor Ghani Md Nor, 2012. "Growth of Firms in Manufacturing Sector," Global Business Review, International Management Institute, vol. 13(1), pages 51-68, February.
    13. Rosanna Pittiglio & Filippo Reganati, 2015. "Multinational Enterprises, Technological Intensity and Firm Survival. Evidence from Italian Manufacturing and Services Firms," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 87-106, March.
    14. Mico Apostolov, 2017. "The impact of FDI on the performance and entrepreneurship of domestic firms," Journal of International Entrepreneurship, Springer, vol. 15(4), pages 390-415, December.
    15. Harald Strotmann, 2002. "Determinanten des Überlebens von Neugründungen in der badenwürttembergischen Industrie. Eine empirische Survivalanalyse mit amtlichen Betriebsdaten," IAW Discussion Papers 06, Institut für Angewandte Wirtschaftsforschung (IAW).
    16. Manjon, M.C., 2004. "Firm Size and Short-Term Dynamics in Aggregate Entry and Exit," Discussion Paper 2004-2, Tilburg University, Center for Economic Research.
    17. Flores-Romero, Manuel G., 2004. "Survival of the Small Firm and the Entrepreneur under Demand and Effciency Uncertainty," Economic Research Papers 269594, University of Warwick - Department of Economics.
    18. Erol Taymaz & Aykut Lenger, 2004. "Multinational Corporations as a Vehicle for Productivity Spillovers in Turkey," DRUID Working Papers 04-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    19. Ozkan Eren & Masayuki Onda & Bulent Unel, 2016. "Effects of FDI on Entrepreneurial Activity: Evidence from Right-to-Work and Non-Right-to-Work States," Departmental Working Papers 2016-04, Department of Economics, Louisiana State University.
    20. Pekka Ilmakunnas & Vesa Kanniainen, 2001. "Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978–93," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 195-218, August.

    More about this item

    Keywords

    FDI; entrepreneurship; entry/exit;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:618. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.upf.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.