Journal of Industry, Competition and Trade

, Volume 4, Issue 3, pp 163–189 | Cite as

Firm Growth and FDI: Are Multinationals Stimulating Local Industrial Development?

  • Georgios Fotopoulos
  • Helen Louri
Article

Abstract

The aim of this paper is to improve our understanding of the empirical determinants of firm growth by extending the literature to include a new group of variables related to foreign direct investment (FDI), namely the degree of foreign ownership and technology spillovers. Based on recent developments in the field, our analysis also encompasses the role of sunk costs and financial constraints, while quantile regression techniques are adopted as more suitable to the data available (2,640 manufacturing firms operating in Greece in the 1992–1997 period). Our findings highlight the role of FDI in increasing firm growth with varying intensity depending on industry groups and regression quantiles, and vindicate the use of new variables.

firm growth FDI spillovers quantile regression 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aitchison, J. and Brown, J.A.C., The Lognormal Distribution. Cambridge University Press: Cambridge, 1957.Google Scholar
  2. Aitken, B. and Harrison, A., “Do domestic firms benefit from direct foreign investment? Evidence from Venezuela,” Am. Econ. Rev., vol. 89 no. 3, pp. 605–618, 1999.Google Scholar
  3. Almus, M. and Nerlinger, E.A., “Testing `Gibrat's', lawfor young firms-empirical evidence for West Germany,” Small Business Econ., vol. 15, pp. 1–12, 2000.Google Scholar
  4. Aslanoglu, E., “Spillover effects of foreign direct investment on Turkish manufacturing industry,” J. Int. Devel., vol. 12, pp. 1111–1130, 2000.Google Scholar
  5. Audretsch, D.B., Santarelli, E., and Vivarelli, M., “Start-up size and industrial dynamics: some evidence from Italian manufacturing,” Int. J. Ind. Organ., vol. 17, pp. 965–983, 1999.Google Scholar
  6. Barbosa, N. and Louri, H. “On the determinants of multinationals' ownership preferences: evidence from Greece and Portugal,” Int. J. Ind. Organ., vol. 20 no. 4, pp.493–515, 2002.Google Scholar
  7. Barrell, R. and Pain, N., “Foreign direct investment, technological change, and economic growth within Europe,” Econ. J., vol. 107, pp. 1770–1786, 1997.Google Scholar
  8. Beccetti, L. and Trovato, G., “The determinants of growth for small and medium sized firms. The role of the availability of external finance,” Small Business Econ., vol. 19, pp. 291–306, 2002.Google Scholar
  9. Bellak, C., “Howdomestic and foreign firms differ and howdoes it matter?” J. Econ. Surveys, vol. 18 no. 4, pp. 483–514, 2004.Google Scholar
  10. Blomström, M., and Persson, H., “Foreign investment and spillover efficiency in an underdeveloped economy: evidence from the Mexican manufacturing industry,” World Devel., vol. 11, pp. 493–501, 1983.Google Scholar
  11. Blomström, M. and Kokko, A., “Multinational corporations and spillovers,” J. Econ. Surveys, vol. 12, pp. 247–277, 1998.Google Scholar
  12. Blomström, M. and Sjöholm, F., “Technology transfer and spillovers: Does local participation with multinationals matter?” Euro. Econ. Rev., vol. 43 no. 4–6, pp. 915–923, 1999.Google Scholar
  13. Blomström, M., “Foreign investment and productive efficiency: The case of Mexico,” J. Ind. Econ., vol. 35 no. 1, pp. 97–110, 1986.Google Scholar
  14. Blomström, M., Kokko, A., and Globerman, S., “The determinants of host country spillovers from foreign direct investment: a reviewand synthesis of the literature?” in Inward investment, Technological Change and Growth, Pain, N. (ed.), Palgrave: New York, pp. 34–65, 2001.Google Scholar
  15. Blonigen, B.A. and Tomlin, K., “Size and growth of Japanese plants in the United States,” Int. J. Ind. Organ., vol. 19, pp. 931–952, 2001.Google Scholar
  16. Buchinsky, M., “Recent advances in quantile regression models,” Human Resour., vol. 33, pp. 88–126, 1998.Google Scholar
  17. Cabral, L. and Mata, J., “On the evolution of the firm size distribution: facts and theory,” Am. Econ. Rev., vol. 93 no. 4, pp. 1075–1090, 2003.Google Scholar
  18. Cabral, L., “Sunk costs, firm size and firm growth,” J. Ind. Econ., vol. 43, pp. 161–172, 1995.Google Scholar
  19. Caves, R.E., “Multinational firms, competition, and productivity in host-country markets,” Economica, vol. 41 no. 2, pp. 176–193, 1974.Google Scholar
  20. Caves, R.E., “Industrial organization and newfindings on the turnover and mobility of firms,” J. Econ. Liter., vol. 36 no. 4, pp. 1947–1982, 1998.Google Scholar
  21. Chesher, A., “Testing the lawof proportionate effect,” J. Ind. Econ., vol. 27, pp. 403–411, 1979.Google Scholar
  22. Chhibber, P. and Majumdar, S., “Foreign ownership and profitability: Property rights, control, and the performance of firms in Indian industry,” J. LawEcon., vol. 42 no. 1, pp. 209–238, 1999.Google Scholar
  23. Cooley, T. and Quadrini, V., “Financial markets and firm dynamics,” Am. Econ. Rev., vol. 91 no. 5, pp. 1286–1310, 2001.Google Scholar
  24. Das, S., “Size, age and firm growth in an infant industry: The computer hardware industry in India,” Int. J. Ind. Organ., vol. 13, pp. 111–126, 1995.Google Scholar
  25. Dimelis, S. and Louri, H., “Foreign ownership and production efficiency: A quantile regression analysis,” Oxford Econ. Papers, vol. 54, pp. 449–469, 2002.Google Scholar
  26. Djankov, S. and Hoekman, B., “Foreign investment and productivity growth in Czech enterprises,” World Bank Econ. Rev., vol. 14, pp. 49–64, 2000.Google Scholar
  27. Driffield, N., “The impact on domestic productivity of inward investment in the U.K.,” Manchester School, vol. 69, pp. 103–119, 2001.Google Scholar
  28. Dunne, P. and Hughes A., “Age, size, growth and survival: U.K. companies in the 1980s,” J. Ind. Econ., vol. 42, pp. 115–140, 1994.Google Scholar
  29. Dunne, T., Roberts, M.J., and Samuelson, L., “The growth and failure of U.S. manufacturing plants,” Quart. J. Econ., vol. 104, pp. 671–698, 1989.Google Scholar
  30. Elston, J.-A., “An Examination of the relationship between firm size, growth and liquidity in the Neuer Market,” Economic Research Centre of the Deutsche Bundesbank, Discussion Paper 15/02, 2002.Google Scholar
  31. Evans, D.S., “Tests of alternative theories of firm growth,” J. Political Econ., vol. 95, pp. 657–674, 1987a.Google Scholar
  32. Evans, D.S., “The relationship between firm growth size, and age: estimates for 100 manufacturing industries,” J. Ind. Econ., vol. 35, pp. 567–581, 1987b.Google Scholar
  33. Farinas, J.C. and Moreno, L., “Firms' growth, size and age: A nonparametric approach,” Rev. Ind. Organ., vol. 17, pp. 249–265, 2000.Google Scholar
  34. Fazzari, S.M, Hubbard, G.R., and Petersen, B.C., “Financing constraints and corporate investment,” Brookings Papers on Economic Activity, vol. 1, pp. 141–195, 1988.Google Scholar
  35. Fotopoulos, G. and Louri, H., “Corporate growth and FDI: Are multinationals stimulating local industrial development?” CEPR London Discussion Paper No. 3128, 2002.Google Scholar
  36. Gibrat, R., Les Inegalites Economiques, Sirey: Paris, 1931.Google Scholar
  37. Girma, S., “Absorptive capacity and productivity spillovers from FDI: a threshold regression analysis,” European Economy Group Working Paper No. 25, 2003.Google Scholar
  38. Girma, S., Greenaway, D., and Wakelin, K., “Who benefits from foreign direct investment in the U.K.?” Scot. J. Polit. Econ., vol. 48 no. 2, pp. 119–133, 2001.Google Scholar
  39. Globerman, S., “Foreign direct investment and `spillover' efficiency benefits in Canadian manufacturing industries,” Can. J. Econ., vol. 12, pp. 42–56, 1979.Google Scholar
  40. Görg, H. and Strobl, E., “Multinational companies and productivity spillovers: A meta-analysis,” Econ. J., vol. 111, pp. 723–739, 2001.Google Scholar
  41. Gould, W., “Interquantile and simultaneous-quantile regression,” State Tech. Bull., vol. 38, pp. 14–22, 1997.Google Scholar
  42. Greene, W.H., Econometric Analysis, Prentice-Hall: New Jersey, 1997.Google Scholar
  43. Griffith, R., Redding, S., and Simpson, H., “Productivity convergence and foreign ownership at the establishment level,” The Institute for Fiscal Studies (IFS) Working Paper WP02/22, 2002.Google Scholar
  44. Haddad, M. and Harrison, A., “Are there positive spillovers from direct investment? Evidence from panel data for Morroco,” J. Devel. Econ., vol. 42 no. 1, pp. 51–74, 1993.Google Scholar
  45. Hall, B.H., “The relationship between firm size and firm growth in the U.S. manufacturing industries,” J. Ind. Econ., vol. 35, pp. 583–606, 1987.Google Scholar
  46. Harris, M. and Raviv, A., “The theory of capital structure,” J. Fin., vol. 46, pp. 297–355, 1991.Google Scholar
  47. Hart, P.E. and Prais, S.J., “The analysis of business concentration: A statistical approach,” J. Roy. Stat. Soc. A, vol. 119, pp. 150–191, 1956.Google Scholar
  48. Hart, P.E. and Oulton, N., “Growth and size of firms,” Econ. J., vol. 106, pp. 1242–1252, 1996.Google Scholar
  49. Hart, P.E. and Oulton, N., “Zipf and the size distribution of firms,” Appl. Econ. Lett., vol. 4, pp. 205–206, 1997.Google Scholar
  50. Hart, P.E., “Size and growth of firms,” Economica, vol. 29, pp. 29–39, 1962.Google Scholar
  51. Hart, P.E., “Galtonian regression across countries and the convergence of productivity,” Oxford Bull. Econ. Stat., vol. 57, pp. 287–293, 1995.Google Scholar
  52. Hart, P.E., “Theories of firms' growth and the generation of jobs,” Rev. Ind. Organ., vol. 17, pp. 229–248, 2000.Google Scholar
  53. Heshmati, A., “On the growth of micro and small firms: Evidence from Sweden,” Small Business Econ., vol. 17, pp. 213–228, 2001.Google Scholar
  54. Hubert, F. and Pain, N., “Inward investment and technical progress in the United Kingdom manufacturing sector,” Scottish J. Pol. Econ., vol. 48 no. 2, pp. 134–147, 2001.Google Scholar
  55. Hymer, S. and Pashigian, P., “Firm size and rate of growth,” J. Polit. Econ., vol. 70, pp. 556–569, 1962.Google Scholar
  56. Ijiri, Y. and Simon, H.A., SkewDistributions and the Size of Business Firms, North-Holland, NewYork, 1977.Google Scholar
  57. Jovanovic, B., “Selection and evolution of industry,” Econometrica, vol. 50, pp. 3–37, 1982.Google Scholar
  58. Kamshad, K.M., “Firm growth and survival: Does ownership structure matter?” J. Econ. Manage. Strat., vol. 3, pp. 521–543, 1994.Google Scholar
  59. Kathuria, V., “Productivity spillovers from technology transfer to Indian manufacturing firms,” J. Int. Devel., vol. 12, pp. 343–369, 2000.Google Scholar
  60. Kathuria, V., “Liberalization, FDI and productivity spillovers-an analysis of Indian manufacturing firms,” Oxford Economic Papers, vol. 54, pp. 688–718, 2002.Google Scholar
  61. Kim, C.-S., Mauer, D.S., and Sherman, A.E., “The determinants of corporate liquidity: theory and evidence,” J. Fin. Quan. Anal., vol. 33 no. 3, pp. 335–359, 1998.Google Scholar
  62. Koenker, R. and Bassett, G., “Regression quantiles,” Econometrica, vol. 46, pp. 33–50, 1978.Google Scholar
  63. Koenker, R. and Bassett, G., “Robust tests for heteroscedasticity based on regression quantiles,” Econometrica, vol. 50, pp. 43–61, 1982.Google Scholar
  64. Koenker, R. and Machado, J.A.F., “Goodness of fit and related processes for quantile regression,” J. Am. Stat. Assoc., vol. 94, pp. 1296–1310, 1999.Google Scholar
  65. Kokko, A., “Technology, market characteristics and spillovers,” J. Devel. Econ., vol. 43, pp. 279–293, 1994.Google Scholar
  66. Kokko, A., “Productivity spillovers from competition between local firms and foreign affiliates,” J. Int. Devel., vol. 8, pp. 517–530, 1996.Google Scholar
  67. Konings, J., “The effects of direct foreign investment on domestic firms: evidence from firm level panel data in emerging economies,” William Davidson Institute Working Paper No. 344, 2000.Google Scholar
  68. Kumar, M.S., “Growth, acquisition activity and firm size: evidence from the United Kingdom,” J. Ind. Econ., vol. 33, pp. 327–338, 1985.Google Scholar
  69. Lang, L., Ofek, E., and Stulz, R.M., “Leverage, investment, and firm growth” J. Fin. Econ., vol. 40, pp. 3–29, 1996.Google Scholar
  70. Leamer, E.E., Specification Searches: Ad Hoc Inference with Non-experimental Data, Wiley: New York, 1978.Google Scholar
  71. Li, X., Liu, X., and Parker, D., “Foreign direct investment and productivity spillovers in the Chinese manufacturing sector,” Econ. Syst., vol. 25, pp. 305–321, 2001.Google Scholar
  72. Liu, X., Siler, P., Wang, C., and Wei, Y., “Productivity spillovers from foreign direct investment: evidence from U.K. industry level panel data,” J. Int. Business Stud., vol. 31 no. 3, pp. 407–425, 2000.Google Scholar
  73. Lotti, F., Santarelli, E., and Vivarelli, M., “Does Gibrat's lawhold among young and small firms?” J. Evol. Econ., vol. 13, pp. 213–235, 2003.Google Scholar
  74. Louri, H., Papanastassiou, M., and Lantouris, J., “FDI in the EU periphery: A multinomial logit analysis of Greek firm strategies,” Regional Studies, vol. 35 no. 5, pp. 419–427, 2000.Google Scholar
  75. Mansfield, E., “Entry, Gibrat's law, innovation, and the growth of firms,” Am. Econ. Rev., vol. 52, pp. 1023–1051, 1962.Google Scholar
  76. Markusen, J. and Venables, A., “Foreign direct investment as a catalyst for industrial development,” Euro. Econ. Rev., vol. 43, pp. 335–356, 1999.Google Scholar
  77. Mata, J. and Machado, J.A. F., “Firm start-up size: A conditional quantile approach,” Euro. Econ. Rev., vol. 40, pp. 1305–1323, 1996.Google Scholar
  78. Mata, J., “Sunk costs and entry by small and large plants” in Entry and Market Contestability, Geroski, P.A. and Schwalbach, J. (eds), Blackwell: Oxford, U.K., pp. 49–62, 1991.Google Scholar
  79. Mata, J., “Firm growth during infancy,” Small Business Econ., vol. 6, pp. 27–40, 1994.Google Scholar
  80. Myers, S.C. and Rajan, R.G., “The paradox of liquidity,” Quart. J. Econ., vol. 113 no. 3, pp. 733–771, 1998.Google Scholar
  81. Myers, S.C., “Determinants of corporate borrowing,” J. Fin. Econ., vol. 5, pp. 147–175, 1977.Google Scholar
  82. Opler, T.C. and Titman, S., “Financial distress and corporate performance,” J. Fin., vol. 49, pp. 1015–1040, 1994.Google Scholar
  83. Opler, T., Pinkowitz, L., Stulz, R., and Williamson, R., “The determinants and implications of corporate cash holdings,” J. Fin. Econ., vol. 52, pp. 3–46, 1999.Google Scholar
  84. Oulton, N., “Why do foreign-owned firms in the U.K. have higher labour productivity?” in Inward Investment, Technological Change and Growth, Pain, N. (ed.), Palgrave: New York, pp. 122–161, 2001.Google Scholar
  85. Pfaffermayr, M. and Bellak, C., “Why foreign-owned firms are different: A conceptual framework and empirical evidence from Austria,” Hamburg Institute of International Economics, Discussion Paper No. 115, 2000.Google Scholar
  86. Quandt, R.E., “On the size distribution of firms,” Am. Econ. Rev., vol. 56, pp. 416–432, 1966.Google Scholar
  87. Samuels, J.M., “Size and growth of firms,” Rev. Econ. Stud., vol. 32, pp. 105–112, 1965.Google Scholar
  88. Silberman, I.H., “On lognormality as a summary measure of concentration,” Am. Econ. Rev., vol. 57, pp. 807–831, 1967.Google Scholar
  89. Silverman, B.W., Density Estimation for Statistics and Data Analysis. Chapman and Hall: London, 1986.Google Scholar
  90. Simon, H.A. and Bonini, C.P., “The size distribution of business firm,” Am. Econ. Rev., vol. 48, pp. 607–617, 1958.Google Scholar
  91. Singh, A., and Whittington, G., “The size and growth of firms,” Rev. Econ. Stud., vol. 42, pp. 15–26, 1975.Google Scholar
  92. Sjoholm, F., “Technology gap, competition and spillovers from direct foreign investment: evidence from establishment data,” J. Devel. Stud., vol. 36, pp. 53–73, 1999a.Google Scholar
  93. Sjoholm, F., “Productivity growth in Indonesia: the role of regional characteristics and direct foreign investment,” Econ. Devel. Cultural Change, vol. 47, pp. 559–584, 1999b.Google Scholar
  94. Steindl, J., Random Process and the Growth of Firms: A Study of the Pareto Law, Hafner: New York, 1965.Google Scholar
  95. Sutton, J., “Gibrat's legacy,” J. Econ. Liter., vol. 35, pp. 40–59, 1997.Google Scholar
  96. Ushijima, T., “Internal capital market and the growth and survival of Japanese plants in the United States,” J. Jpn. Int. Econ., 2004 (forthcoming).Google Scholar
  97. Variyam, J.N. and Kraybill, D.S., “Empirical evidence on determinants of firm growth,” Econ. Lett., vol. 38, pp. 31–26, 1992.Google Scholar
  98. Wagner, J., “The post-entry performance of newsmall firms in German manufacturing industries,” J. Ind. Econ., vol. 42, pp. 141–154, 1994.Google Scholar
  99. Wagner, J., “Firm size, firm growth, and persistence of chance: testing Gibrat's law with establishment data from lower saxony,” Small Business Econ., vol. 4, pp. 125–131, 1992.Google Scholar

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Georgios Fotopoulos
    • 1
  • Helen Louri
    • 2
  1. 1.Department of Economics, University Campus, RioUniversity of PatrasPatrasGreece
  2. 2.Department of EconomicsAthens University of Economics and BusinessAthensGreece

Personalised recommendations