Paper #618

Title:

Does foreign direct investment crowd out domestic entrepreneurship?

Author:

Koen de Backer

Date:

May 2002

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

JEL codes:

F23, L10, M13

Area of Research:

Macroeconomics and International Economics

Published in:

Review of Industrial Organization 22, 67-84, 2003, Kluwer Academic Publishers

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