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Does foreign ownership matter for survival and growth? Dynamics of competition and foreign direct investment

  • Sule Ozler

    ()

    (Department of Economics, UCLA)

  • Erol Taymaz

    ()

    (Department of Economics, METU)

Foreign direct investment has been considered for a long time as an important channel for transfer of technology to developing countries, and an important tool to generate jobs in those countries. Multinationals bring the factor that developing countries need most, capital, and therefore, they may also help to ease the unemployment pressure created by a rapidly growing (urban) population. It is shown by many researchers that foreign establishments are much more productive than domestic firms, but the empirical evidence regarding technology spillovers is not unambiguous. In this paper, we suggest that the impact of foreign direct investment on local industry hinges on the dynamics of foreign and domestic establishments, i.e., entry, selection (exit), and growth processes. Our analysis on foreign and domestic establishments in Turkish manufacturing industry for the period 1983-96 indicates that foreign establishments have a better performance level than domestic ones when they are first established in the local market, and have a higher survival probability. However, when the establishment characteristics are controlled for, domestic establishments have the same survival probability, but achieve lower rates of employment growth in the early post-entry period.

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File URL: http://www.erc.metu.edu.tr/menu/series04/0406.pdf
File Function: First version, 2004
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Paper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 0406.

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Length: 28 pages
Date of creation: Mar 2004
Date of revision: Mar 2004
Handle: RePEc:met:wpaper:0406
Contact details of provider: Postal: Ankara 06531
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