nach oben

Small Business Economics

Erschienen in:

13.11.2018

Wage and competition channels of foreign direct investment and new firm entry

verfasst von: Marzieh Abolhassani, Seçil Hülya Danakol

Erschienen in: Small Business Economics | Ausgabe 4/2019

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

Using a rich data set of the Dutch manufacturing sector between 1995 and 2010, we investigate the effect of foreign direct investment (FDI) on domestic new firm entry. The emerging empirical literature has focused on the direct relationship between FDI and entry, but has not explored the mechanisms behind the observed effect. Drawing on a simultaneous equations model, our analysis features both the direct effect of FDI as well as indirect effects through two channels: industry competition and wages. We estimate the parameters through 3SLS and take into account the endogeneity of competition and wages with respect to entry. Our results show that there is a significant negative direct effect of FDI on entry. At the same time, FDI decreases competition and increases wage levels, which then impact entry positively and negatively, respectively. The total effect of FDI is negative, but small and virtually disappears after one year. Policy implications are discussed.

Vorheriger Artikel Independent by necessity? The life satisfaction of necessity and opportunity entrepreneurs in 70 countries

Nächster Artikel “Confucian” traits, entrepreneurial personality, and entrepreneurship in China: a regional analysis

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

The assumption maintained throughout this paper is that lower (higher) industry concentration is regarded as proxying more (less) competition. This is a widely used approach in relevant studies. For the theoretical foundation of our choice, please see Appendix A.

See Lipsey (2004) for a summary of the literature on FDI and wages.

Statistiek financiën van grote (niet-financiële) ondernemingen in Dutch.

Statistiek financiën kleine ondernemingen in Dutch.

As of 2000, SFGO and SFKO merged into a single data set; the so-called statistics on finances of non-financial enterprises (NFO-statistiek financiën van niet-financiële ondernemingen in Dutch). However, SFGO as such is still available.

Gemeentelijke basisadministratie persoonsgegevens in Dutch.

SBI stands for “standaard bedrijfsindeling” which corresponds to the Dutch version of the NACE industry classification.

This value is based on model 1 in Table 3 where no lag structure is imposed. Alternative models with different lag lengths and the breakdown of industries based on technological intensity culminate in different number of observations.

All unreported results are available from the authors on request.

Details on this issue for the US are available at URL: goo.gl/SfuHTH (retrieved on 09/10/2013).
More information on the competition legislation within the EU is available at URL: goo.gl/dGTaqW (retrieved on 09/10/2013).

Note that in this study, we only consider FDI of firms with total assets of at least 22.7M€ and entry rates are predominantly measured through small firms with total assets below 22.7M€. This means that we only investigate effects of FDI in larger firms on the entry of primarily small firms in order to solve the potential endogeneity of the former.

A few studies (e.g., Almeida 2007; Heyman et al. 2007) use matched employer-employee data to address this issue. The results in both papers show that higher wage premiums in foreign firms, although existent, are lower than previously thought. The data in this study, however, does not allow for such a matching procedure.

ZZPs (zelfstandige zonder personeel in Dutch, i.e. independent professional without personnel) are those people who work for themselves but do not hire any other employees.

The Dutch tax regime has been structured in such a way that there are large financial benefits for freelancing: one often has to pay no taxes at all in the first few years. As a result, many people have opted to start one-(wo)man businesses and become a ZZP-er.

Industries in our data set are very narrowly defined: at the five-digit. Two of our 252 industries (in a given year) consist of only one-(wo)man firms. Therefore, when these firms are excluded in the robustness checks, these two industries drop out of our sample. The original sample size is then reduced by two observations from 3784 to 3782 in the robustness analysis. In contrast, the remaining 250 industries consist of both one-(wo)man and other firms and we can still compute all of our industry-level variables in a similar way as before. This means that all of these 250 industries remain in the sample used in the robustness analysis.

Eurostat uses the following aggregation of manufacturing industries according to technological intensity: high technology, medium high technology, medium low technology, and low technology. We combine the first two categories and label it as high tech, and subsequently merger the last two categories and label it as low tech.

Acs, Z.J., & Audretsch, D.B. (1989). Small-firm entry in US manufacturing. Economica, 56(222), 255–265.

Aitken, B., Harrison, A., Lipsey, R.E. (1996). Wages and foreign ownership a comparative study of mexico, Venezuela, and the United States. Journal of International Economics, 40(3-4), 345–371.

Aitken, B., Hanson, G.H., Harrison, A.E. (1997). Spillovers, foreign investment, and export behavior. Journal of International Economics, 43(1-2), 103–132.

Aitken, B.J., & Harrison, A.E. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605–618.

Almeida, R. (2007). The labor market effects of foreign owned firms. Journal of International Economics, 72(1), 75–96.

Amess, K., & Roberts, B.M. (2005). The impact of foreign and state ownership on post-transition industrial concentration: the case of Polish manufacturing. Economic Change and Restructuring, 38(3), 211–225.

Ayyagari, M., & Kosová, R. (2010). Does FDI facilitate domestic entry? Evidence from the Czech Republic. Review of International Economics, 18(1), 14–29.

Bain, J.S. (1968). Industrial organization. New York: John Wiley.

Barbosa, N., & Eiriz, V. (2009). The role of inward foreign direct investment on entrepreneurship. International Entrepreneurship and Management Journal, 5(3), 319–339.

Barrios, S., Görg, H., Strobl, E. (2005). Foreign direct investment, competition and industrial development in the host country. European Economic Review, 49(7), 1761–1784.

Barry, F., Görg, H., Strobl, E. (2003). Foreign direct investment, agglomerations, and demonstration effects: an empirical investigation. Review of World Economics, 139(4), 583–600.

Bhawe, N., & Zahra, S.A. (2017). Inducing heterogeneity in local entrepreneurial ecosystems: the role of MNEs. Small Business Economics, 1–18. https://doi.org/10.1007/s11187-017-9954-7.

Black, S.E., & Brainerd, E. (2004). Importing equality? The impact of globalization on gender discrimination. Industrial and Labor Relations Review, 57(4), 540–559.

Blomström, M. (1986). Multinationals and market structure in Mexico. World Development, 14(4), 523–530.

Blomström, M., & Kokko, A. (1999). How foreign investment affects host countries. World Bank Publications.

Boone, J., van der Wiel, H., van Ours, J. (2007). How (not) to measure competition. CPB Discussion Paper 91, CPB Netherlands Bureau for Economic Policy Analysis.

Boone, J. (2008). A new way to measure competition. Economic Journal, 118(531), 1245–1261.

Bourlakis, C.A. (1987). Multinational corporations and domestic market structure: the case of Greek manufacturing industries. Weltwirtschaftliches Archiv, 123(4), 719–733.

Casson, M.C. (1986). Multinationals and world trade: Vertical integration and the international division of labour. London: Allen and Unwin.

Caves, R.E. (2007). Multinational enterprise and economic analysis. Cambridge: Cambridge University Press.

Chen, Z., Ge, Y., Lai, H. (2011). Foreign direct investment and wage inequality: Evidence from China. World Development, 39(8), 1322–1332.

Conyon, M.J., Girma, S., Thompson, S., Wright, P.W. (2002). The productivity and wage effects of foreign acquisition in the United Kingdom. The Journal of Industrial Economics, 50(1), 85–102.

Danakol, S.H., Estrin, S., Reynolds, P., Weitzel, U. (2017). Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse? Small Business Economics, 48(3), 599–612.

Das, S. (2002). Foreign direct investment and the relative wage in a developing economy. Journal of Development Economics, 67(1), 55–77.

De Backer, K., & Sleuwaegen, L. (2003). Does foreign direct investment crowd out domestic entrepreneurship? Review of Industrial Organization, 22(1), 67–84.

Driffield, N. (2001a). Inward investment and host country market structure: the case of the UK. Review of Industrial Organization, 18(4), 363–378.

Driffield, N. (2001b). Inward investment, industry concentration and the speed of adjustment. Weltwirtschaftliches Archiv, 137(2), 193–214.

Driffield, N., & Girma, S. (2003). Regional foreign direct investment and wage spillovers: plant level evidence from the UK electronics industry. Oxford Bulletin of Economics and Statistics, 65(4), 453–474.

Driffield, N., & Taylor, K. (2000). FDI and the labour market: a review of the evidence and policy implications. Oxford Review of Economic Policy, 16(3), 90–103.

Dunning, J., & Lundan, S. (2008). Multinational enterprises and the global economy. Edward Elgar: Cheltenham.

Forte, R.P. (2016). Multinational firms and host country market structure: a review of empirical literature. The Journal of International Trade & Economic Development, 25(2), 240–265.

Fosfuri, A., Motta, M., Ronde, T. (2001). Foreign direct investment and spillovers through workers’ mobility. Journal of International Economics, 53(1), 205–222.

Geroski, P.A. (1991a). Domestic and foreign entry in the United Kingdom: 1983-1984. In Entry and market contestability. An international comparison. Oxford: Blackwell.

Geroski, P.A. (1991b). Market dynamics and entry. Oxford: Blackwell.

Geroski, P. (1995). What do we know about entry?. International Journal of Industrial Organization, 13(4), 421–440.

Goel, R.K. (2018). Foreign direct investment and entrepreneurship: gender differences across international economic freedom and taxation. Small Business Economics, 50(4), 887–897.

Gorecki, P.K. (1976). The determinants of entry by domestic and foreign enterprises in Canadian manufacturing industries: some comments and empirical results. The Review of Economics and Statistics, 58(4), 485–488.

Görg, H., & Strobl, E. (2000). Multinational companies, technology spillovers and firm survival: evidence from Irish manufacturing. Research paper No: 2000-12, Centre for Research on Globalisation and Labour Markets.

Görg, H., & Strobl, E. (2001). Multinational companies and productivity spillovers: a meta-analysis. Economic Journal, 111(475), 723–739.

Görg, H., & Strobl, E. (2002). Multinational companies and indigenous development: an empirical analysis. European Economic Review, 46(7), 1305–1322.

Görg, H., & Greenaway, D. (2004). Much ado about nothing? Do domestic firms really benefit from foreign direct investment? The World Bank Research Observer, 19(2), 171–197.

Greenaway, D., Sousa, N., Wakelin, K. (2004). Do domestic firms learn to export from multinationals?. European Journal of Political Economy, 20(4), 1027–1043.

Greene, W. (2011). Econometric analysis. New York: Prentice Hall.

Grossman, G.M. (1984). International trade, foreign investment, and the formation of the entrepreneurial class. American Economic Review, 74(4), 605–614.

Haddad, M., & Harrison, A. (1993). Are there positive spillovers from direct foreign investment? Evidence from panel data for Morocco. Journal of Development Economics, 42(1), 51–74.

Heyman, F., Sjöholm, F., Tingvall, P.G. (2007). Is there really a foreign ownership wage premium? Evidence from matched employer-employee data. Journal of International Economics, 73(2), 355–376.

Hogenbirk, A., Hagedoorn, J., van Kranenburg, H. (2009). Globalization in the Netherlands. In Handbook on small nations in the global economy: The contribution of multinational enterprises to national economic success (pp. 12–29): Edward Elgar Publishing.

Hymer, S. (1976). The international operations of national firms: a study of direct foreign investment, (p. 1970). Cambridge: MIT Press (Doctoral dissertation, MIT).

Javorcik, B.S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605–627.

Jeong, K.Y., & Masson, R.T. (1990). Market structure, entry, and performance in Korea. The Review of Economics and Statistics, 72(3), 455–462.

Kindleberger, C.P. (1969). American business abroad: six lectures on direct investment. New Haven.

Kleijweg, A.J.M., & Lever, M.H.C. (1996). Entry and exit in Dutch manufacturing industries. Review of Industrial Organization, 11(3), 375–382.

Kokko, A., Tansini, R., Zejan, M.C. (1996). Local technological capability and productivity spillovers from FDI in the Uruguayan manufacturing sector. The Journal of Development Studies, 32(4), 602–611.

Lall, S. (1979). Multinationals and market structure in an open developing economy: the case of Malaysia. Weltwirtschaftliches Archiv, 115(2), 325–350.

Lee, I.H., Hong, E., Sun, L. (2014). Inward foreign direct investment and domestic entrepreneurship: a regional analysis of new firm creation in Korea. Regional Studies, 48(5), 910–922.

Lipsey, R.E. (2004). Home- and host-country effects of foreign direct investment. In Challenges to globalization: Analyzing the economics (pp. 333–382): University of Chicago Press.

Lipsey, R., & Sjöholm, F. (2004). Foreign direct investment, education and wages in Indonesian manufacturing. Journal of Development Economics, 73(1), 415–422.

Markusen, J.R., & Venables, A.J. (1999). Foreign direct investment as a catalyst for industrial development. European Economic Review, 43(2), 335–356.

Mata, J. (1993). Entry and type of entrant: Evidence from Portugal. International Journal of Industrial Organization, 11(1), 101–122.

Mata, J., & Machado, J.A. (1996). Firm start-up size: a conditional quantile approach. European Economic Review, 40(6), 1305–1323.

Navaretti, G.B., & Venables, A.J. (2004). Multinational firms in the world economy. Princeton: Princeton University Press.

OECD. (2002). Foreign direct investment for development: maximizing benefits minimizing cost. Paris: OECD.

Orr, D. (1974). The determinants of entry: a sudy of the Canadian manufacturing industries. The Review of Economics and Statistics, 56(1), 58–66.

Oster, S.M. (1999). Modern competitive analysis. New York: Oxford University Press.

Parker, S.C. (2004). The economics of self-employment and entrepreneurship. Cambridge: Cambridge University Press.

Parker, S. (2009). The economics of entrepreneurship. Cambridge: Cambridge University Press.

Rosenbaum, D.I., & Lamort, F. (1992). Entry, barriers, exit, and sunk costs: an analysis. Applied Economics, 24(3), 297–304.

Roy, A.D. (1951). Some thoughts on the distribution of earnings. Oxford Economic Papers, 3(2), 135–146.

Scherer, F., & Ross, D. (1990). Industrial market structure and economic performance. Houghton Mifflin Company.

Shane, S.A. (2003). A general theory of entrepreneurship: the individual-opportunity nexus. Cheltenham: Edward Elgar Publishing.

Siegfried, J.J., & Evans, L.B. (1994). Empirical studies of entry and exit: a survey of the evidence. Review of Industrial Organization, 9(2), 121–155.

Tavares, J., & Wacziarg, R. (2001). How democracy affects growth. European Economic Review, 45 (8), 1341–1378.

Teece, D.J. (1985). Multinational enterprise, internal governance, and industrial organization. American Economic Review, 75(2), 233–238.

Teece, D. (2006). Reflections on the Hymer thesis and the multinational enterprise. International Business Review, 15(2), 124–139.

Tirole, J. (1988). The theory of industrial organization. Cambridge: MIT Press.

UNCTAD. (2000). World investment report 2000: Cross-border mergers and acquisitions and development. New York and Geneva: United Nations.

Valta, P. (2012). Competition and the cost of debt. Journal of Financial Economics, 105(3), 661–682.

van Praag, C.M., & Versloot, P.H. (2007). What is the value of entrepreneurship? A review of recent research. Small Business Economics, 29(4), 351–382.

van Stel, A., Storey, D.J., Thurik, A.R. (2007). The effect of business regulations on nascent and young business entrepreneurship. Small Business Economics, 28(2–3), 171–186.

Wacziarg, R. (2001). Measuring the dynamic gains from trade. The World Bank Economic Review, 15(3), 393–429.

Xu, J. (2012). Profitability and capital structure: evidence from import penetration. Journal of Financial Economics, 106(2), 427–446.

Zellner, A., & Theil, H. (1962). Three-stage least squares: simultaneous estimation of simultaneous equations. Econometrica, 30(1), 54–78.

Zhao, Y. (2001). Foreign direct investment and relative wages: the case of China. China Economic Review, 12(1), 40–57.

Titel: Wage and competition channels of foreign direct investment and new firm entry
verfasst von: Marzieh Abolhassani
Seçil Hülya Danakol
Publikationsdatum: 13.11.2018
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 4/2019
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-018-0115-4

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2019

Independent by necessity? The life satisfaction of necessity and opportunity entrepreneurs in 70 countries

Trade credit versus bank credit: a simultaneous analysis in European SMEs

Entrepreneurial intention and regional internationalization in China

Language skills and migrant entrepreneurship: evidence from China

“Confucian” traits, entrepreneurial personality, and entrepreneurship in China: a regional analysis

Informality and poverty in Ecuador

Premium Partner