Foreign direct investment, competition and industrial development in the host country

Salvador Barrios (), Holger Goerg and Eric Strobl ()
Authors registered in the RePEc Author Service: Holger Görg

No 2004011, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper analyses the impact of foreign direct investment (FDI) on the development of local firms. We focus on two likely of FDI: a competition effect which deters entry of domestic firms and positive market externalities which foster the development of local industry. Using a simple theoretical model to illustrate how these forces work we show that the number of domestic firms follows a u-shaped curve, where the competition effect first dominates but is gradually outweighed by positive externalities. Evidence for Ireland tends to support this result. Specifically, applying semi-parametric regression techniques on plant level panel data for the manufacturing sector we find that while the competition effect may have initially deterred local firms' entry, this initial effect has been outpaced by positive externalities making the overall impact of FDI largely positive for the domestic industry.

Keywords: foreign direct investment; spillovers; industrial development; firmentry; semi-parametric estimations (search for similar items in EconPapers)
JEL-codes: F2 L6 O1 (search for similar items in EconPapers)
Date: 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Chapter: Foreign direct investment, competition and industrial development in the host country (2016)
Journal Article: Foreign direct investment, competition and industrial development in the host country (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2004011

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