Multinational companies and indigenous development: an empirical analysis

This paper presents an empirical study of the effect of foreign multinational companies on the development of indigenous firms in the host country, using data for the Irish manufacturing sector. Our starting point is a recent paper by Markusen and Venables (1999) that shows formally that multinationals, through the creation of linkages with indigenous suppliers, can exert positive effects on the development of indigenous firms. Based on the literature on entry in industrial organisation theory, we estimate empirically a model describing the entry of indigenous firms in Irish manufacturing. Our results indicate that there is a positive effect of multinational companies on the entry of indigenous firms in the Irish economy for a variety of alternative specifications.