Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse?

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

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

There are conflicting predictions in the literature about the relationship between FDI and entrepreneurship. This paper explores how foreign direct investment (FDI) inflows, measured by lagged cross-border mergers and acquisitions (M&A), affect entrepreneurial entry in the host economy. We have constructed a micro-panel of more than two thousand individuals in each of seventy countries, 2000–2009, linked to FDI by matching sectors. We find the relationship between FDI inflows and domestic entrepreneurship to be negative across all economies. This negative effect is much more pronounced in developed than developing economies and is also identified within industries, notably in manufacturing. Policies to encourage FDI via M&A need to consider how to counteract the prevailing adverse effect on domestic entrepreneurship.

Original languageEnglish
Pages (from-to)599-612
Number of pages14
JournalSmall Business Economics
Volume48
Issue number3
DOIs
Publication statusPublished - 1 Mar 2017
Externally publishedYes

Keywords

  • Entrepreneurship
  • Foreign direct investment
  • New firm entry
  • Spillovers

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