Thi Ngoc Dao

Document Type

Doctoral Thesis

Disciplines

5.2 ECONOMICS AND BUSINESS, Business and Management.

Abstract

The thesis explores links between Foreign Direct Investment (FDI) and the economic development of host country, analysing both direct and indirect effects. Concerning direct effects, FDI has been recognised as an important driver of exports and job creation for the host country. In terms of indirect effects, however, a consensus has not been reached on the spillover effects and competition effects that FDI generates in indigenous firms. Evaluating these effects has been critical for small open economies due to their heavy reliance on external markets and factors. There is a need for comprehensive research investigating the impacts of FDI on the host country through a multi-level analysis. The thesis therefore addresses this gap by investigating FDI’s impacts from a macro to a micro level perspective. At the country level, the thesis embarks on an empirical investigation into the direct effects of FDI, juxtaposing Ireland’s experience with Vietnam’s to explore how FDI patterns vary in different economic contexts. The thesis reviews the development of industrial policy, followed by an investigation of the role of FDI in economic development in terms of exports and employment. Subsequently, it applies the Investment Development Path (IDP) theory to investigate the applicability of the IDP model in the different stages of economic development. By implementing policies to attract FDI, both countries have witnessed positive results in their economic development. However, they eventually shift their focus to developing indigenous firms due to the risks of over-reliance on external catalysts. This dual approach motivates further investigation into the relationship between foreign-owned and indigenous firms in the host country. Moving to the firm level, the thesis subsequently discusses indirect effects of FDI on indigenous firms, focusing on spillover and competition effects. The thesis firstly examines the link between foreign-owned firms and indigenous firms in both manufacturing and service sectors in Ireland. It discusses competition effects in employment shifts, the utilisation of local resources and the productivity gap between foreign and indigenous firms. Then, it assesses the impact of foreign presence on the entry of indigenous firms using a fixed effects model with robust standard errors. These analyses provide evidence to explain the lack of horizontal and vertical linkages between foreign-owned firms and Irish-owned firms. The thesis further narrows the focus to a select group of startups supported by Enterprise Ireland through the High Potential Startups programme (HPSU) from 2009 to 2015. We leverage a self-collected database of HPSUs to investigate the impact of foreign-owned firms on the survival chances of these startups. The findings reveal a positive relationship between the presence of foreign firms and new firm survival using a complementary log-log model. This impact remains consistent across various models, measurement methods of foreign presence and an expanded dataset. Due to the lack of comprehensive data on HPSUs for conducting survival analysis, the thesis addresses the challenges of data scarcity in startup research, including ‘Temporal data conflict’, ‘Naming conflict’ and ‘Structural conflict’. It proposes a process to compile a unique dataset, filling a gap in available data sources by constructing a new database for HPSUs. Overall, the thesis contributes a comprehensive understanding of FDI’s roles using different analysis levels. It provides robust empirical support for the IDP theory’s applicability across diverse economic contexts. Moreover, it expands the discussion on the linkages beyond manufacturing sectors to include service sectors. Methodologically, the thesis overcomes data challenges to construct a novel HPSU database. While the thesis reveals weak linkages between foreign and indigenous firms, it highlights the pivotal role of FDI in enhancing the survival of indigenous startups. The findings underscore the strategic importance of policy interventions that integrate the benefits of attracting FDI with the development of indigenous firms, especially new firms.

DOI

https://doi.org/10.21427/71CP-EF85

Creative Commons License

Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 4.0 International License.

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