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Market Size and the Survival of Foreign-owned Firms

Rodney Falvey (), Sir David Greenaway () and Zhihong Yu ()

The Economic Record, 2007, vol. 83, issue s1, S23-S34

Abstract: We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign-owned firms. The survival probabilities of foreign-owned firms depend on firm-level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign-owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign-owned firms if their parent firms are sufficiently productive. Copyright © 2007 The Economic Society of Australia.

Date: 2007
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