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Despite the key role of multinational enterprises (MNEs) in bothinternational markets and domestic economies, there is no consensus on theirimpact on their host economy. In particular, do MNEs stimulate new domesticfirms through knowledge spillovers? Here, we look at the impact of MNEs on theentry and exit of domestic industries in Irish regions before, during, andafter the 2008 Financial Crisis. Specifically, we are interested in whether thepresence of MNEs in a region results in knowledge spillovers and the creationof new domestic industries in related sectors. To quantify how related anindustry is to a region's industry basket we propose two cohesion measures,weighted closeness and strategic closeness, which capture direct linkages andthe complex connectivity structure between industries in a region respectively.We use a dataset of government-supported firms in Ireland (covering 90% ofmanufacturing and exporting) between 2006-2019. We find that domesticindustries are both more likely to enter and less likely to leave a region ifthey are related to so-called 'overlapping' industries containing both domesticand MNE firms. In contrast, we find a negative impact on domestic entry andsurvival from cohesion to 'exclusive MNE' industries, suggesting that domesticfirms are unable to 'leap' and thrive in MNE-proximate industries likely due toa technology or know-how gap. This dynamic was broken, with domestic firmsentering MNE exclusive sectors, by a large injection of Brexit diversificationfunds in 2017-18. Finally, the type of cohesion matters. For example, strategicrather than weighted closeness to exclusive domestic sectors matters for bothentries and exits.

The role of relatedness and strategic linkages between domestic and MNE sectors in regional branching and resilience