Foreign versus Domestic Survival in a Changing Environment

Antonios Georgopoulos, Dionysios-Antonios Lalountas and Ioannis-Dionysios Salavrakos

International Journal of the Economics of Business, 2014, vol. 21, issue 2, 209-229

Abstract: This paper explores whether and how environmental dynamics can affect foreign and domestic survival. Utilizing a unique longitudinal data set with 420 manufacturing plants created in the protected developing Greek economy (1960-1980), we test these plants' ability to survive in the new, integrated environment (1981-2001), when Greece became a member of the European Union (EU). After controlling for time and age effects, we find that environmental dynamics in terms of integration and economic development negatively influence the survival of all tariff-jumping and unskilled labor-intensive plants, regardless of their ownership. However, survival evolution of foreign-owned and domestic plants differs over time depending on the country's degree of economic integration. Specifically, during the shallow integration period (1981-1990), foreign-controlled plants tend to retain a survival premium, which they appear to have acquired in the protectionism era. This means that foreign-owned plants benefited more from external environmental dynamics in terms of tariff protection compared to domestic ones. Nevertheless, in the deep integration period (1991-2001), the declining survival rates tend to converge, and the foreign survival premium completely disappears. Consequently, in the long run, environmental change similarly affects foreign and domestic survival.

Date: 2014
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DOI: 10.1080/13571516.2013.878547

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