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Market Size and the Survival of Foreign-owned Firms

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  • Rod Falvey
  • David Greenaway
  • Zhihong Yu

Abstract

We develop a general equilibrium model with heterogeneous firms and Foreign Direct Investment (FDI) cost uncertainty and investigate the survival of foreign-owned firms. The survival probabilities of foreign-owned firms depend on firm-level characteristics such as productivity and host country characteristics such as market size. We show that a foreign-owned firm will be less likely to be shut down when its parent firm’s productivity is higher and its indigenous competitors are less productive. Whilst a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign-owned firms if their parent firms are sufficiently productive.

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File URL: http://www.nottingham.ac.uk/gep/documents/papers/2007/07-25.pdf
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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 07/25.

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Handle: RePEc:not:notgep:07/25

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Keywords: FDI; heterogeneous firms; market size;

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