Foreign direct investment leads to fewer start-ups

Direct investment by foreign companies leads to less entrepreneurship, especially in the short term. This is the conclusion reached by PhD Candidate Marzieh Abolhassani based on an analysis of comprehensive Statistics Netherlands (CBS) data from companies in the Dutch manufacturing industry. At the same time, foreign investment leads to less competition and higher wages, which have a positive and negative impact respectively on the emergence of new businesses. On balance, foreign investment leads to fewer start-ups, although the effect is minimal and wanes after a year. The negative impact of foreign companies is strongest in sectors that are less technologically advanced.

Abolhassani also investigated the spill-over effects of labour mobility. She shows that domestic manufacturing companies experience a boost in productivity one year after recruiting staff from multinational companies. This can be explained by the educational level and skills of the newly recruited staff.

Labour mobility

She also shows that recruiting staff from more productive companies leads to productivity gains. Labour mobility within a sector is characterized by a wider distribution of knowledge and skills, leading to higher productivity gains than labour mobility between sectors.

Government interference

Finally, Abolhassani analysed data from Chinese listed companies to investigate the impact of government interference on business performance. She concludes that companies controlled by the Chinese government (whether national or local) performed less well than companies that do not have governments as major shareholders. Conversely, financially underperforming companies benefit from government influence, which supports the government’s theory of providing a “supportive hand”.

More information

Link to PhD thesis: Essays on entrepreneurship, worker mobility and firm performance

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