Inbound foreign direct investment and domestic entrepreneurial activity

Abstract

There is an interesting and lively debate going on in the academic literature intersecting trade policy and entrepreneurship. Several studies have shown that inbound foreign direct investment (FDI) has a negative effect on rates of entrepreneurship, while others find the opposite – a higher rate of new firm creation associated with increased inbound FDI. We study the phenomenon using a cross-country analysis of data on entrepreneurs from 38 countries and from 2001 to − 2008. Results indicate that inbound FDI has negative associations with five types of entrepreneurship (nascent, new, early-stage, established, and high-growth) measured by the Global Entrepreneurship Monitor survey. In our discussion, we argue that our study supports the contention that studies counting new limited liability company registrations do not always measure the same thing as entrepreneurial entries (self-reports), leading to different, even opposite results when subjected to empirical analysis.

Keywords::

• trade
• inbound FDI
• entrepreneurship
• crowding effect
• knowledge spillovers

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

^1. Survey data from 1998 to -2000 were part of GEM's pilot studies and not included in the data data-set offered publicly from the GEM consortium (www.gemconsortium.org).

^2. Publicly available GEM survey from 2001 to 2008 includes over 60 countries. Usable data for the purpose of our study, however, were available for only 38 countries.