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Exit and Foreign Ownership: Evidence from Export-Oriented Firms in Sri Lanka

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  • Daniel Stock

    () (Center for International Development at Harvard University)

Abstract

While foreign direct investment may play a transformative role in the development of economies, foreign-owned firms are also said to be more “footloose” than comparable local firms. This paper uses a semi-parametric approach to examine the link between firm ownership and exit rates, tracking a set of export-oriented firms operating in Sri Lanka in years between 1978 and 2017. We find that foreign firms are in fact 42-56% more likely to exit than local firms, but only for their first years of existence. In their later years, foreign firms are actually less likely to exit than local firms, though this late advantage is not statistically significant when conditioned on the firms’ initial characteristics (such as employment size). This pattern supports the theory that foreign firms face a steeper early learning curve in adapting to local conditions.

Suggested Citation

  • Daniel Stock, 2019. "Exit and Foreign Ownership: Evidence from Export-Oriented Firms in Sri Lanka," CID Working Papers 112a, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:112a
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    File URL: https://growthlab.cid.harvard.edu/files/growthlab/files/2019-03-cid-fellows-wp-112-sri-lanka-export-firms.pdf
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    References listed on IDEAS

    as
    1. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
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    Keywords

    Foreign Direct Investment;

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