Working Paper: CEPR ID: DP3325
Authors: Holger Grg; Eric Strobl
Abstract: This Paper presents an empirical study of the effect of foreign multinational companies on the development of indigenous firms in the host country. Our starting point is a recent paper by Markusen and Venables (1999) that shows formally that multinationals, through the creation of linkages with indigenous suppliers, can exert positive effects on the development of indigenous firms. Based on the literature on entry in industrial organisation, we estimate empirically a model describing the entry of indigenous firms using data for the Irish manufacturing sector. Our results indicate that there is a positive effect of multinational companies on the entry of indigenous firms for a variety of alternative specifications.
Keywords: firm entry; host country development; multinational companies
JEL Codes: F23; L60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Presence of MNCs (F23) | Entry of indigenous firms (F23) |
| Employment share of foreign firms (F23) | Entry of indigenous firms (F23) |
| Presence of MNCs (F23) | Demand for domestically produced intermediate goods (L60) |
| Demand for domestically produced intermediate goods (L60) | Entry of indigenous firms (F23) |
| Presence of MNCs (F23) | Development of domestic intermediate good producers (L60) |
| Development of domestic intermediate good producers (L60) | Entry of indigenous firms (F23) |
| Presence of MNCs (F23) | Competition effect on domestic firms (L11) |