The role of inward foreign direct investment on entrepreneurship

This paper investigates whether foreign firms had a positive impact on entrepreneurial activity measured by the net creation of firms. Using firm-level panel data for the Portuguese manufacturing and service industries over the period 1986 to 2000, we test whether the impact of foreign firms on firms’ entry depends on the number and size of previous foreign entrants. Overall, the results cast some doubts on the influence of foreign firms in assisting entrepreneurial activity. The impact of a first foreign investment is, in general, positive but the marginal impact of additional investments appears to be negative.