Market Size and the Survival of Foreign-Owned Firms
Bond University - Department of Economics
University of Nottingham - School of Economics
University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)
University of Nottingham Research Paper No. 2007/25
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.
Number of Pages in PDF File: 27
Keywords: FDI, heterogeneous firms, market size
JEL Classification: F12, L11working papers series
Date posted: July 5, 2007
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