Do Multinationals' R&D Activities Stimulate Indigenous Entrepreneurship? Evidence from China's "Silicon Valley"

Using a unique firm-level dataset from China's quot;Silicon Valley,quot; we investigate how multinational enterprises (MNEs) affect local entrepreneurship and Ramp;D activities upon entry. We find that Ramp;D activities of MNEs in an industry stimulate entry of domestic firms into the same industry and enhance Ramp;D activities of newly entering domestic firms. By contrast, MNEs' production activities or domestic firms' Ramp;D activities do not have such effect. Since MNEs are technologically more advanced than domestic firms, our findings suggest that diffusion of MNEs' advanced knowledge to potential indigenous entrepreneurs through MNEs' Ramp;D stimulates entry of domestic firms