Does FDI promote entrepreneurial activities? A meta-analysis

• Published in: World development Vol. 142; p. 105436
• Main Authors: Hong, Sanghyun, Robert Reed, W., Tian, Bifei, Wu, Tingting, Chen, Gen
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01-06-2021; Elsevier Science Publishers; Pergamon Press Inc
• Subjects: Analysis; Business schools; Economic development; Empirical analysis; Entrepreneurs; Entrepreneurship; FDI; Foreign investment; Foreign investments; Innovations; Internet; Meta-analysis; Public policy; Time periods; Entrepreneurship; FDI; Meta-analysis
• ISSN: 0305-750X; 1873-5991
• DOI: 10.1016/j.worlddev.2021.105436

•We conduct the first meta-analysis of the effect of FDI on entrepreneurial activity.•We find that the overall, mean effect of FDI on entrepreneurial activity is close to zero and statistically insignificant.•This suggests that public policy efforts to encourage entrepreneurship through FDI are unlikely to be successful.•An innovation of our study is that we develop a nested testing framework to select among competing meta-analytic models.•We make all of our data and code available online to allow push-button replication.
Researchers have long identified both FDI and entrepreneurship as potentially important determinants of economic development. Accordingly, a literature has grown to investigate whether FDI stimulates entrepreneurial activity in host countries. It is difficult to synthesize these empirical findings because many of the studies use different definitions of FDI and entrepreneurship, study different time periods and countries, and apply different estimation procedures to generate their results. In order to better understand this literature, we collect 675 estimates from 47 studies that estimate the relationship between FDI and entrepreneurial activity using country-level data. We use meta-analysis to address two questions: (1) What is the overall, mean effect of FDI on entrepreneurship?, and (2) What factors account for differences in estimated effects across studies? An innovation of our study is that it develops a nested testing framework to select among a number of competing meta-analytic models. It also extends the new Andrews-Kasy meta-analytic estimators to allow for explanatory variables. We find that the overall, mean effect of FDI on entrepreneurial activity is close to zero and statistically insignificant. While FDI and entrepreneurial activity may each play an important role in economic development, our results indicate that FDI does not generally stimulate entrepreneurship. This suggests that public policy efforts to encourage entrepreneurship through FDI are unlikely to be successful. All the files necessary to reproduce the results in this paper are available online at Harvard Dataverse.