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Market Size and the Survival of Foreign‐owned Firms *
Author(s) -
FALVEY ROD,
GREENAWAY DAVID,
YU ZHIHONG
Publication year - 2007
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2007.00407.x
Subject(s) - competitor analysis , productivity , business , foreign direct investment , indigenous , market size , monetary economics , survival of the fittest , economics , industrial organization , commerce , marketing , economic growth , ecology , evolutionary biology , biology , macroeconomics
We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.