The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing |
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Authors: | Katja Zajc Kejžar |
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Institution: | (1) Faculty of Economics, University of Ljubljana, Kardeljeva pl. 17, 1000 Ljubljana, Slovenia |
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Abstract: | This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing
sector in the 1994–2003 period. It adopts the firm dynamics framework that allows testing of selection effects directly by
assessing the impact of foreign firms’ activity on the probability of exiting of local firms (crowding out). The results show
that intra-industry productivity spillover effects offset only a minor part of the competition pressure which results from
foreign firm entry, hence incumbent firms experience a drop in their survival probability upon a foreign firm’s entry within
a particular industry. This result is driven by foreign firm entry of the greenfield type, as entry through the acquisition
of existing firms has no significant effect. The strength of the crowding-out effect decreases with the incumbent firm’s export
propensity. There is no significant evidence that inward FDI would stimulate the selection process through backward linkages
in the upstream supplying industries, whereas foreign firms’ activity reduces the exit probability of downstream local customers
(through forward linkages). |
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Keywords: | |
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