Injecting Demand Through Spillovers: Foreign Direct Investment, Domestic Socio-Political Conditions, and Host-Country Entrepreneurial Activity
22 Pages Posted: 25 Jul 2013 Last revised: 31 Jan 2014
Date Written: December 28, 2012
This study examines how foreign direct investment (FDI) spurs entrepreneurial activity in host countries. We also investigate why this relationship varies across countries because of domestic socio-political conditions. The findings from our panel analyses of 104 countries from 2000 to 2009 are consistent with our predictions that foreign direct investment positively relates to business creation and this positive effect is strongest in countries with poor institutional support, weak political stability, and low general human capital. Our work provides new insights into how cross-border investments and domestic socio-political conditions jointly influence entrepreneurial activity, especially in emerging and developing economies.
Keywords: Foreign direct investment, New firm creation, Institutional support, Political stability, General human capital
JEL Classification: L26, F23, M13, O17
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