Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse?
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There are conflicting predictions in the literature about the relationship between FDI and entrepreneurship. This paper explores how foreign direct investment (FDI) inflows, measured by lagged cross-border mergers and acquisitions (M&A), affect entrepreneurial entry in the host economy. We have constructed a micro-panel of more than two thousand individuals in each of seventy countries, 2000–2009, linked to FDI by matching sectors. We find the relationship between FDI inflows and domestic entrepreneurship to be negative across all economies. This negative effect is much more pronounced in developed than developing economies and is also identified within industries, notably in manufacturing. Policies to encourage FDI via M&A need to consider how to counteract the prevailing adverse effect on domestic entrepreneurship.
KeywordsForeign direct investment Entrepreneurship New firm entry Spillovers
JEL ClassificationsF23 M13 L26
The authors acknowledge helpful comments from two anonymous referees, as well as Niels Bosma, Jolanda Hessels, Klaus Meyer, Wim Naude, Erik Stam and participants in a seminar at the National Academies in Washington, the German Institute for Economic Research in Washington (DIWDC), the Maastricht School of Management, Utrecht University School of Economics and session participants at the 2013 European Economic Association Meetings in Gothenburg, at the 2013 Babson College Entrepreneurship Research Conference in Lyon and at the workshop on ‘Institutions and the Allocation of Entrepreneurship’ in Utrecht. Any remaining errors are their own. We also gratefully acknowledge financial support from the Dutch Ministry for Economic Affairs.
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