DO FOREIGN FIRMS CROWD OUT DOMESTIC FIRMS? EVIDENCE FROM THE CZECH REPUBLIC

I examine how foreign presence affects the growth and survival of domestic firms. Separating a negative crowding out and positive technology spillovers, I analyze whether the crowding out effect is dynamic, that is, domestic firms cut production over time as foreign firms grow, or a static effect realized on foreign entry into the industry. Using 1994-2001 firm-level Czech data, I find evidence of both technology spillovers and crowding Out. However, crowding out is only short term; after initial entry shakeout, growing foreign sales increase domestic firm growth and survival, indicating domestic demand creation effect. However, I find no such benefits from domestic competition.