Which sectoral FDI flows crowd in domestic entrepreneurship?
by Nadia Doytch
Global Business and Economics Review (GBER), Vol. 18, No. 2, 2016

Abstract: This study examines the impact of several sector- and industry-level FDI inflows - mining, manufacturing, total services, and financial services - on domestic entrepreneurship, which is measured as the density of newly registered firms. We use a unique dataset of sectoral FDI coupled with data from the World Bank Doing Business Indicators for a panel of up to 96 countries and the period 2004-2012. Our model controls for fixed capital formation, quality of institutions, as well as several cost of doing business indicators: the cost of starting a business, tax rates, and export costs. We use a dynamic panel estimator that allows us to exploit the time-varying characteristics of the data and to control for omitted variable biases and endogeneity issues in the data. We find that although services and mining FDI are related to crowding-in of domestic entrepreneurship, manufacturing FDI is associated with a crowding-out effect.

Online publication date: Mon, 28-Mar-2016

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