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CEP discussion paper

Foreign Direct Investment and Domestic Entrepreneurship: Blessing or Curse?


This paper explores the effects of foreign direct investment, measured by mergers and acquisitions, on domestic entrepreneurial entry. We use a micro-panel of more than two thousand individuals disaggregated by industry in seventy countries including both developed and developing economies, 2000-2009. The theory yields ambiguous predictions about the relationship between FDI and entrepreneurship; positive spillovers via dissemination of technology or negative because of crowding out. Our empirical analysis is conducted at three levels of aggregation. We find the relationship between FDI and domestic entrepreneurship in aggregate and intra-industry to be negative. Policies need to consider how to counteract this effect.


Saul Estrin, Seçil Hülya Danakol, Paul Reynolds and Utz Weitzel

23 May 2014     Paper Number CEPDP1268

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This CEP discussion paper is published under the centre's Growth programme.