DP9793 Foreign Direct Investment and Domestic Entrepreneurship: Blessing or Curse?

Author(s): Seçil Hülya Danakol, Saul Estrin, Paul Reynolds, Utz Weitzel
Publication Date: January 2014
Keyword(s): entrepreneurship, foreign direct investment, new firm entry, spillovers
JEL(s): F23, L26, M13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9793

This paper explores the effects of foreign direct investment, measured by mergers and acquisitions, on domestic entrepreneurial entry. We use a micro-panel of more than two thousand individuals disaggregated by industry in seventy countries including both developed and developing economies, 2000-2009. The theory yields ambiguous predictions about the relationship between FDI and entrepreneurship; positive spillovers via dissemination of technology or negative because of crowding out. Our empirical analysis is conducted at three levels of aggregation. We find the relationship between FDI and domestic entrepreneurship in aggregate and intra-industry to be negative. Policies need to consider how to counteract this effect.