Do Foreign Firms Crowd Out Domestic Firms? Evidence from the Czech Republic

Renáta Kosová
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Renáta Kosová: Cornell University

The Review of Economics and Statistics, 2010, vol. 92, issue 4, 861-881

Abstract: I examine how foreign presence affects the growth and survival of domestic firms. Separating a negative crowding out and positive technology spillovers, I analyze whether the crowding out effect is dynamic, that is, domestic firms cut production over time as foreign firms grow, or a static effect realized on foreign entry into the industry. Using 1994-2001 firm-level Czech data, I find evidence of both technology spillovers and crowding out. However, crowding out is only short term; after initial entry shakeout, growing foreign sales increase domestic firm growth and survival, indicating domestic demand creation effect. However, I find no such benefits from domestic competition. (c) 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2010
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