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Market Size and the Survival of Foreign-owned Firms


We develop a general equilibrium model with heterogeneous firms and foreign direct investment 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. Although 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. Copyright © 2007 The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 83 (2007)
Issue (Month): s1 (09)
Pages: S23-S34

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Handle: RePEc:bla:ecorec:v:83:y:2007:i:s1:p:s23-s34
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