Does FDI increase market concentration? An evaluation of the Portuguese manufacturing industries

Rosa Forte and Paula Sarmento ()
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Paula Sarmento: University of Porto, Faculty of Economics, Porto, Portugal

Acta Oeconomica, 2014, vol. 64, issue 4, 463-480

Abstract: We analyse the impact of FDI on market concentration for the Portuguese manufacturing industries in the 2006–2009 period. Using panel data estimation, and after controlling for other determinants of industry concentration (entry barriers, market size, and growth), we found a significant negative impact of FDI on industry concentration. This finding is in line with the results of the empirical literature on other developed countries. Moreover, it supports the argument that FDI has positive effects on domestic firms, eventually through positive externalities, and contradicts the widespread view that in small economies FDI increases concentration. Overall, this study adds to the controversial literature on FDI and concentration, and it is the first study on this topic applied to Portugal.

Keywords: foreign direct investment; market concentration; panel data; Portugal (search for similar items in EconPapers)
JEL-codes: C23 F23 L11 L60 (search for similar items in EconPapers)
Date: 2014
Note: The authors gratefully acknowledge Natércia Fortuna and Anabela Carneiro’s comments and suggestions about econometric estimation and Alberto Neto’s contribution for starting the literature research on the paper’s topic. We also thank the participants of two international conferences who contributed interesting comments and assisted us in clarifying and finalising a working paper that was the basis of the present article. This research has been financed by the Portuguese Public Funds through Fundação para a Ciência e Tecnologia (FCT) in the framework of the project PEst-OE/EGE/UI4105/2014.
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