Does FDI facilitate Domestic Entry? Evidence from the Czech Republic

42 Pages Posted: 1 Aug 2006 Last revised: 10 Jul 2010

See all articles by Renata Kosova

Renata Kosova

Imperial College London

Meghana Ayyagari

University of Maryland - Robert H. Smith School of Business; George Washington University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 2008

Abstract

This paper analyzes the impact of FDI on domestic firm entry and firm size distributions in 245 industries in the Czech Republic during 1994 to 2000. We find that larger foreign presence stimulates the entry of domestic firms within the same industry indicating the existence of positive horizontal spillovers from FDI. We also find evidence of significant vertical entry spillovers - FDI in downstream (upstream) industries initiates entry in upstream (downstream) sectors via the presence of backward (forward) linkages. Our results also show that entry spillovers through vertical linkages are stronger than horizontal spillovers. However, these entry spillovers vary substantially across industries: while service industries benefit from both horizontal and vertical spillovers, manufacturing industries do not experience significant positive entry spillovers of any kind. In addition, while vertical spillovers prevail among competitive industries, horizontal spillovers dominate in less competitive industries. We also find that country of origin of FDI matters - horizontal spillovers are driven by FDI from the EU countries. The right skewness of the firm size distributions in industries without FDI further emphasizes an important role of FDI presence for overall industry dynamics.

Keywords: Foreign Direct Investment, FDI spillovers, Firm Entry, Industry Dynamics, Firm Size Distributions

JEL Classification: L1, L6, L8, F2, D24

Suggested Citation

Kosova, Renata and Ayyagari, Meghana and Ayyagari, Meghana, Does FDI facilitate Domestic Entry? Evidence from the Czech Republic (October 2008). Available at SSRN: https://ssrn.com/abstract=891781 or http://dx.doi.org/10.2139/ssrn.891781

Renata Kosova (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Meghana Ayyagari

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

George Washington University - School of Business ( email )

Washington, DC 20052
United States

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