Migration of Firms, Home Bias and Economic Growth

This study analyzes the effects of government policies on the short-run and long-run movement of locally owned firms from a developed country to a less-developed country and on the output and growth rate of each country in the presence of home bias. The analysis uses a model which was developed for this purpose, in which growth is stemming from the increase in the number of firms. The study finds that for the less-developed country, harsh policy towards entering firms results in better long-run economic performance, compared to free entry or subsidizing these firms, although the harsh policy is less costly