Gyan, Sylvester and James Nyarkoh, Bright and Yeboah, Samuel (2023): "The Dual Nature of FDI: Boosting Local Startups and SMEs While Posing Challenges".
Preview |
PDF
FDI IMPACTS ON STARTUP BUSINESSES PAPER FOR MPRA.pdf Download (309kB) | Preview |
Abstract
This systematic review delves into the multifaceted relationship between Foreign Direct Investment (FDI) and entrepreneurial ecosystems, with a particular focus on the impact of FDI on local startups and Small and Medium-sized Enterprises (SMEs). The study investigates both the positive and negative effects of FDI, shedding light on its role as a double-edged sword in shaping local entrepreneurial landscapes. The positive effects encompass access to vital funding, enhanced resources, market expansion opportunities, the magnetism of skilled talent, and a culture of knowledge sharing. FDI serves as a lifeline, bridging the funding gap that often hampers local startups, and infusing them with the capital essential for growth, innovation, and global market access. Additionally, foreign investors bring valuable resources, advanced technologies, and managerial expertise, augmenting the capabilities of local entrepreneurs. The presence of foreign corporations also facilitates market expansion, enabling local startups to access international markets and leverage established investor networks. Furthermore, FDI acts as a talent magnet, attracting skilled professionals to the region, thereby enriching the local labour pool. Moreover, interaction with foreign investors fosters a culture of knowledge sharing, exposing local entrepreneurs to global best practices and diverse perspectives. However, alongside these positive effects, negative consequences emerge. Increased competition from foreign firms can stifle the growth prospects of local startups. An overreliance on foreign investors for funding and resources can make local startups vulnerable to shifts in investor sentiment. Unequal power dynamics may lead to unequal partnerships, where local startups have limited negotiating leverage. Moreover, the transfer of technology and knowledge raises concerns about the outflow of critical intellectual property. This systematic review critically examines these dynamics, offering valuable insights into the intricacies of FDI's impact on entrepreneurial ecosystems. The findings inform policymakers, entrepreneurs, and investors alike, guiding them in optimizing the benefits of FDI while mitigating its potential pitfalls. By understanding the complex interplay between FDI and local startups, stakeholders can foster a more vibrant and resilient entrepreneurial ecosystem, conducive to innovation, growth, and sustainability.
Item Type: | MPRA Paper |
---|---|
Original Title: | "The Dual Nature of FDI: Boosting Local Startups and SMEs While Posing Challenges" |
English Title: | "The Dual Nature of FDI: Boosting Local Startups and SMEs While Posing Challenges" |
Language: | English |
Keywords: | Foreign Direct Investment (FDI), entrepreneurial ecosystems, startups, Small and Medium-sized Enterprises (SMEs), funding, resources, market expansion, talent attraction, knowledge sharing. |
Subjects: | F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy |
Item ID: | 118384 |
Depositing User: | DR SAMUEL ASUAMAH YEBOAH |
Date Deposited: | 31 Aug 2023 13:29 |
Last Modified: | 31 Aug 2023 13:29 |
References: | Aghion, P., & Tirole, J. (1994). The management of innovation. The Quarterly Journal of Economics, 109(4), 1185-1209. https://doi.org/10.2307/211836 Aitken, B. J., & Harrison, A. E. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605-618. https://doi.org/10.1257/aer.89.3.605 Alcácer, J., & Oxley, J. E. (2014). Learning by supplying. Strategic Management Journal, 35(2), 204-223. https://doi.org/10.1002/smj.2099 Alcácer, J., & Oxley, J. E. (2014). Learning by supplying. Strategic Management Journal, 35(2), 204-223. Alfaro, L., & Chen, M. X. (2012). Surviving the global financial crisis: Foreign ownership and establishment performance. American Economic Journal: Economic Policy, 4(3), 30-55. https://doi.org/10.1257/pol.4.3.30Blalock & Gertler, 2008 Alfaro, L., Chanda, A., Kalemli-Özcan, S., & Sayek, S. (2009). FDI and economic growth: The role of local financial markets. Journal of International Economics, 74(1), 8-21. Alfaro-Ureña, A., Manelici, I., & Vasquez, J. P. (2019). The effects of joining multinational supply chains: New evidence from firm-to-firm linkages. Journal of International Economics, 118, 268-284. Arif, U., Arif, A., & Khan, F. N. (2022). Environmental impacts of FDI: evidence from heterogeneous panel methods. Environmental Science and Pollution Research, 29(1), 23639-23649. Audretsch, D. B., & Belitski, M. (2017). Entrepreneurial ecosystems in cities: Establishing the framework conditions. Journal of Technology Transfer, 42(5), 1030-1051. Birkinshaw, J., Hood, N., & Jonsson, S. (2000). Building firm-specific advantages in multinational corporations: The role of subsidiary initiative. Strategic Management Journal, 21(1), 63-78. Blalock, G., & Gertler, P. J. (2008). Welfare gains from foreign direct investment through technology transfer to local suppliers. Journal of International Economics, 74(2), 402-421. Blomström, M., & Kokko, A. (2003). Human capital and inward FDI. CEPR Discussion Paper No. 3765. https://ssrn.com/abstract=387900 Blomström, M., & Kokko, A. (2003). The economics of foreign direct investment incentives. In H. Herrmann & R. J. Lipsey (Eds.), Foreign direct investment in the real and financial sector of industrial countries (pp. 37-60). Springer Blomström, M., & Sjöholm, F. (1999). Technology transfer and spillovers: Does local participation with multinationals matter? European Economic Review, 43(4-6), 915-923. https://doi.org/10.1016/S0014-2921(98)00104-5 Blonigen, B. A., & Piger, J. (2014). Determinants of foreign direct investment. Canadian Journal of Economics/Revue canadienne d’économique, 47(3), 775-812. https://doi.org/10.1111/caje.12091 Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-1351 Branstetter, L., & Chen, J. R. (2006). The impact of technology transfer and R&D on productivity growth in Taiwanese industry: Microeconometric analysis using plant and firm-level data. Journal of Industrial Economics, 54(1), 47-76. https://doi.org/10.1111/j.1467-6451.2006.00275.x Branstetter, L., Fisman, R., & Foley, C. F. (2006). Do stronger intellectual property rights increase international technology transfer? Empirical evidence from U.S. firm-level panel data. The Quarterly Journal of Economics, 121(1), 321-349. https://doi.org/10.1162/qjec.2006.121.1.321 Buciuni, G., & Finotto, V. (2016). Innovation in global value chains: Co-location of production and development in Italian low-tech industries. Regional Studies, 50(12), 2010-2023. Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38(4), 499-518. https://doi.org/10.1057/palgrave.jibs.8400277 Cantner, U., Cunningham, J. A., Lehmann, E. E., & Menter, M. (2021). Entrepreneurial ecosystems: a dynamic lifecycle model. Small Business Economics, 57(2), 407-423 Cantwell, J., & Janne, O. (1999). Technological globalization and innovative centers: The role of corporate technological leadership and locational hierarchy. Research Policy, 28(2-3), 119-144. Caves, R. E. (2007). Multinational enterprise and economic analysis (3rd ed.). Cambridge University Press Chaudhury, S., Nanda, N., & Tyagi, B. (2020). Impact of FDI on economic growth in South Asia: Does nature of FDI matters? Review of Market Integration, 12(1-2), 51-69 Chen, V. Z., Li, J., & Shapiro, D. M. (2012). International reverse spillover effects on parent firms: Evidences from emerging-market MNEs in developed markets. European Management Journal, 30(3), 204-218. https://doi.org/10.1016/j.emj.2011.10.003 Cho, D. S., Ryan, P., & Buciuni, G. (2021). Evolutionary entrepreneurial ecosystems: a research pathway. Small Business Economics, 58(4), 1865-1883 Cuervo-Cazurra, A. (2012). How multinational enterprises can impact development: Review and future research agenda. Journal of International Business Studies, 43(1), 22-32. Cusmano, L., Morrison, A., & Rabellotti, R. (2010). Catching up trajectories in the wine sector: A comparative study of Chile, Italy and South Africa. World Development, 38(11), 1588-1602. Dağlıoğlu, A. B. (2022). Start-ups need investment-here’s how the state can help. World Economic Forum. https://www.weforum.org/agenda/2022/07/globalized-startup-countries-attract-fdi/ Driffield, N., & Love, J. H. (2007). Linking FDI motivation and host economy productivity effects: Conceptual and empirical analysis. Journal of International Business Studies, 38(3), 460-473. https://doi.org/10.1057/palgrave.jibs.8400268 Duanmu, J. L., & Guney, Y. (2019). Heterogeneous effect of ethnic networks on international trade of Thailand: The role of family ties and ethnic diversity. International Business Review, 28(2), 391-405. Dunning, J. H. (1993). Multinational enterprises and the global economy. Addison-Wesley. Dunning, J. H. (1998). Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 29(1), 45-66. Gaur, A. S., Kumar, V., & Singh, D. A. (2014). Resources, institutions and internationalization process of emerging economy firms. Journal of World Business, 49(1), 12-20. https://doi.org/10.1016/j.jwb.2013.02.004 Gebreeyesus, M., & Iizuka, M. (2021). Foreign Direct Investment (FDI) and Learning in Ethiopia’s Textile and Garment Sector (Open AIR Working Paper No. 25). Open African Innovation Research Network3 Glass, A. J., & Saggi, K. (2002). Intellectual property rights and foreign direct investment. Journal of International Economics, 56(2), 387-410. https://doi.org/10.1016/S0022-1996(01)00131-1 Görg, H., & Greenaway, D. (2004). Much ado about nothing? Do domestic firms really benefit from foreign direct investment? The World Bank Research Observer, 19(2), 171-197. https://doi.org/10.1093/wbro/lkh019 Ha, T. S., Chu, V. T., Nguyen, M. T. T., Nguyen, D. H. T., & Nguyen, A. N. T. (2021). The impact of Greenfield investment on domestic entrepreneurship. J Innov Entrep, 10(24), 1-16. https://doi.org/10.1186/s13731-021-00164- Harrison, A., Love, I., & McMillan, M. (2004). Global capital flows and financing constraints. Journal of Development Economics, 75(1), 269-301. https://doi.org/10.1016/j.jdeveco.2003.10.002 Hennart, J. F., & Park, Y. R. (1993). Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Management Science, 39(9), 1054-1070. Huang, Y., Chen, F., Wei, H., Xiang, J., Xu, Z., & Akram, R. (2022). The impacts of FDI inflows on carbon emissions: Economic development and regulatory quality as moderators. Frontiers in Energy Research, 9, 820596 Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605-627. Javorcik, B. S., Özden, Ç., Spatareanu, M., & Neagu, C. (2011). Migrant networks and foreign direct investment. Journal of Development Economics, 94(2), 231-241. https://doi.org/10.1016/j.jdeveco.2010.01.012 Khanna, T., & Palepu, K. (2010). Winning in emerging markets: A road map for strategy and execution. Boston, MA: Harvard Business Press. Kim, H., Lee, J., & Lee, J. (2020). Local responsiveness strategy of foreign subsidiaries of multinational enterprises: The moderating role of host country institutional development. Asia Pacific Journal of Management, 37(1), 1-28 Kolk, A., & Lenfant, F. (2010). MNC reporting on CSR and conflict in Central Africa. Journal of Business Ethics, 93(2), 241-255. Lall, S. (1983). The new multinationals: The spread of third world enterprises. John Wiley & Sons. Li, J., Li, Y., & Shapiro, D. M. (2012). Knowledge seeking and outward FDI of emerging market firms: The moderating effect of inward FDI. Global Strategy Journal, 2(4), 277-295. Li, J., Newenham-Kahindi, A., Shapiro, D. M., & Chen, V. Z. (2013). The two-tier bargaining model revisited: Theory and evidence from China’s natural resource investments in Africa. Global Strategy Journal, 3(4), 300-321. Liu, X., Wang, C., & Wei, Y. (2009). Do local manufacturing firms benefit from transactional linkages with multinational enterprises in China? Journal of International Business Studies, 40(7), 1113-1130. https://doi.org/10.1057/jibs.2008.92 Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4), 481-498. Retrieved from [JSTOR]. Maskus, K. E., & Penubarti, M. (1995). How trade-related are intellectual property rights? Journal of International Economics, 39(3-4), 227-248. https://doi.org/10.1016/0022-1996(95)01377-8 Meyer, K. E., & Sinani, E. (2009). When and where does foreign direct investment generate positive spillovers? A meta-analysis. Journal of International Business Studies, 40(7), 1075-1094. https://doi.org/10.1057/jibs.2008.111 Meyer, K. E., Estrin, S., Bhaumik, S. K., & Peng, M. W. (2009). Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal, 30(1), 61-80. Moher, D., Liberati, A., Tetzlaff, J., Altman, D. G., & The PRISMA Group. (2009). Preferred reporting items for systematic reviews and meta-analyses: The PRISMA statement. PLoS Medicine, 6(7), e1000097. Mudambi, R., & Santangelo, G. D. (2016). R&D internationalization in the multinational corporation: A network approach. Global Strategy Journal, 6(1), 18-41. Narula, R., & Marin, A. (2005). Exploring the relationship between direct and indirect spillovers from FDI in Argentina. MERIT Research Memoranda No. 2005-013. United Nations University - Maastricht OECD. (2021). Fostering FDI-SME ecosystems to boost productivity and innovation. Fostering FDI-SME ecosystems to boost productivity and innovation - OECD OECD. (2021). Policies for improving FDI impacts on productivity and innovation. Retrieved from OECD website. Policies for improving FDI impacts on productivity and innovation | FDI Qualities Policy Toolkit | OECD iLibrary (oecd-ilibrary.org) Page, M. J., McKenzie, J. E., Bossuyt, P. M., Boutron, I., Hoffmann, T. C., Mulrow, C. D., … & Moher, D. (2021). The PRISMA 2020 statement: an updated guideline for reporting systematic reviews. BMJ, 372(71). Park, W. G., & Lippoldt, D. (2008). Technology transfer and the economic implications of the strengthening of intellectual property rights in developing countries (OECD Trade Policy Papers No. 62). OECD Publishing. https://doi.org/10.1787/244764462745 Saurav, A., Liu, Y., & Sinha, A. (2020). Foreign direct investment and employment outcomes in developing countries: A literature review of the effects of FDI on job creation and wages. https://documents1.worldbank.org/curated/en/956231593150550672/pdf/Foreign-Direct-Investment-and-Employment-Outcomes-in-Developing-Countries-A-Literature-Review-of-the-Effects-of-FDI-on-Job-Creation-and-Wages.pdf Spithoven, A., & Merlevede, B. (2022). The productivity impact of R&D and FDI spillovers: characterising regional path development. The Journal of Technology Transfer, 48, 560-590. The productivity impact of R&D and FDI spillovers: characterising regional path development | SpringerLink Stam, E., & Spigel, B. (2019). Entrepreneurial ecosystem elements. Small Business Economics, 53(3), 905-924. Teece, D. J. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15(6), 285-305. https://doi.org/10.1016/0048-7333(86)90027-2 Tigau, H. (2019). The importance of FDI on stimulating entrepreneurship – A regional study in the case of Romania. Proceedings of the International Conference on Applied Statistics, 1(1), 484-495. Tricco, A. C., Lillie, E., Zarin, W., O’Brien, K. K., Colquhoun, H., Levac, D., … & Straus, S. E. (2018). PRISMA extension for scoping reviews (PRISMA-ScR): checklist and explanation. Annals of Internal Medicine, 169(7), 467-473. UNCTAD. (2020). World Investment Report 2020: International Production Beyond the Pandemic. United Nations Publications. Wang, J., & Blomström, M. (1992). Foreign investment and technology transfer: a simple model. European Economic Review, 36(1), 137-155. Wang, M., & Wong, M. C. S. (2009). Foreign direct investment and economic growth: The growth accounting perspective. Economic Inquiry, 47(4), 701-710. https://doi.org/10.1111/j.1465-7295.2008.00140.x Whiteaker, J. (2022). The relationship between start-ups and FDI. Investment Monitor. World Bank Document |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/118384 |