Foreign Direct Investment and Domestic Entrepreneurship: Blessing or Curse?

40 Pages Posted: 15 Dec 2013

See all articles by Seçil Danakol

Seçil Danakol

Utrecht University

Saul Estrin

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Paul D. Reynolds

Florida International University, Eugenio Pino & Family Global Entrepreneurship Center

Utz Weitzel

Utrecht University - Utrecht University School of Economics; Radboud University - Economics Department, IMR

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Abstract

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.

Keywords: foreign direct investment, entrepreneurship, new firm entry, spillovers

JEL Classification: F23, M13, L26

Suggested Citation

Danakol, Seçil and Estrin, Saul and Reynolds, Paul D. and Weitzel, Utz, Foreign Direct Investment and Domestic Entrepreneurship: Blessing or Curse?. IZA Discussion Paper No. 7796. Available at SSRN: https://ssrn.com/abstract=2367671

Seçil Danakol (Contact Author)

Utrecht University ( email )

No Address Available

Saul Estrin

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Paul D. Reynolds

Florida International University, Eugenio Pino & Family Global Entrepreneurship Center ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Utz Weitzel

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Radboud University - Economics Department, IMR ( email )

Nijmegen, 6500 HK
Netherlands

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