The death of German firms: What role for foreign direct investment?

John P. Weche and Chiara Franco ()
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Chiara Franco: Catholic University of the Sacred Heart, Milan, Italy

No 264, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: This paper aims at examining the role played by inward Foreign Direct Investments (FDI) in affecting the exit probabilities of German manufacturing firms in the pre-crisis year 2007. We introduce two main novelties: in the first place, we include the FDI variable, dividing it between types of foreign investor (industrial vs. financial) besides the usual analysis with the division by country of origin. Secondly, we analyze whether FDI may have effects not only on the probability that a firm exits the domestic market, but also on whether it stops being internationally involved, that is, whether it stops importing or exporting. We find that German firms in most cases suffer from higher competition introduced by foreign firms except when they are part of a high-R&D region or a high-tech sector when they have the needed absorptive capacity to take advantage of possible spillover effects. We also find that U.S. FDI has a crowding out effect for firms located in low-tech sectors but not in high-tech sectors. The results are reversed when considering financial investments instead of industrial investments. Finally, we find that FDI is negatively correlated with exits from export markets but positively with those from import markets.

Keywords: MNE; FDI; foreign ownership; survival; Germany (search for similar items in EconPapers)
JEL-codes: F23 L60 O30 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2013-02
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Death of German Firms: What Role for Foreign Direct Investment? (2015)
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