Does foreign direct investment crowd out domestic entrepreneurship?

Koen de Backer

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: In analyzing firm entry and exit across Belgian manufacturing industries, this paper presents evidence that import competition and foreign direct investment discourage entry and stimulate exit of domestic entrepreneurs. These results are in line with theoretical occupational choice models that predict foreign direct investment would crowd out domestic entrepreneurs through their selections in product and labor markets. However, the empirical results also suggest that this crowding out effect may be moderated or even reversed in the long-run due to the long term positive effects of FDI on domestic entrpreneurship as a result of learning, demonstration, networking and linkage effects between foreign and domestic firms.

Keywords: FDI; entrepreneurship; entry/exit (search for similar items in EconPapers)
JEL-codes: F23 L10 M13 (search for similar items in EconPapers)
Date: 2002-05
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:618

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