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Does foreign direct investment stimulate new firm creation? In search of spillovers through industrial and geographical linkages

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  • Laixiang Sun

    (University of Maryland
    SOAS University of London
    International Institute for Applied System Analysis (IIASA))

  • In Hyeock Lee

    (Loyola University Chicago)

  • Eunsuk Hong

    (SOAS University of London)

Abstract

This paper examines the spillover effects of inward foreign direct investment (FDI) on the entrepreneurial activities of new firm creation through both industrial and geographical linkages. Using a dataset of 44,434 newly created small firms in 234 regions of South Korea in 2000–2004, this study finds that while the spillover impacts of FDI in the low-tech industry are positive and significant across almost all four possible combinations of the intra-/inter-regional and intra-/inter-sectoral channels, the impacts in the high-tech industry are largely intra-sectoral within the host region and across neighboring regions. Moreover, all statistically significant spillover effects follow an inverted ‘U’-shaped curvilinear trend.

Suggested Citation

  • Laixiang Sun & In Hyeock Lee & Eunsuk Hong, 2017. "Does foreign direct investment stimulate new firm creation? In search of spillovers through industrial and geographical linkages," Small Business Economics, Springer, vol. 48(3), pages 613-631, March.
    • Handle: RePEc:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9803-0
    DOI: 10.1007/s11187-016-9803-0
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