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Does foreign direct investment crowd out domestic entrepreneurship?

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  • Koen De Backer
  • Leo Sleuwaegen

    ()
    (Vlerick Leuven Gent Management School)

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, where it is shown that crowding out of domestic entrepreneurs through foreign direct investment works through selection in product and labor markets. However, the empirical results also suggest important long term structural positive effects of FDI on domestic entrpreneurship as a result of learning, demonstration, networking and linkage effects between foreign and domestic firms which tend to moderate or even reverse crowding out effects on domestic entrepreneurship.

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Bibliographic Info

Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2002-14.

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Length: 35 pages
Date of creation: 17 May 2002
Date of revision:
Handle: RePEc:vlg:vlgwps:2002-14

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