Title: Which sectoral FDI flows crowd in domestic entrepreneurship?

Authors: Nadia Doytch

Addresses: Department of Economics, CUNY Brooklyn College, School of Business, 2900 Bedford Avenue, Brooklyn, NY 11210, USA; Ph.D. Program in Economics, CUNY Graduate Center, USA; Asian Institute of Management Manila, The Philippines

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.

Keywords: foreign direct investment; FDI flows; domestic entrepreneurship; firm entry; sectoral FDI; mining industry; manufacturing industry; total services; financial services; fixed capital formation; institutional quality; startup costs; tax rates; export costs.

DOI: 10.1504/GBER.2016.075530

Global Business and Economics Review, 2016 Vol.18 No.2, pp.124 - 135

Received: 03 Jun 2014
Accepted: 14 Dec 2014
Published online: 28 Mar 2016 *

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