No 2023/3 How does the regional presence of foreign-owned multinational enterprises affect local start-up performance

Abstract

This paper analyses how the presence of foreign-owned multinational enterprises (MNEs) affects the performance of start-ups in the same region. Focusing on the population of Swedish start-ups and MNEs between 2007 and 2015, we investigate the relationship between start-up productivity and regional share of MNE employment. We find effects that differ by sectoral belonging of start-ups and MNEs. Notably, while the effects of the local presence of foreign-owned MNEs are negative when start-ups and local MNEs belong to the same sector, they are positive for the local presence of MNEs in related and (to some weaker extent) unrelated sectors. Moreover, we find that as start-ups mature the effect of the local presence of foreign-owned MNEs on start-up productivity increases, irrespective of their sectoral belonging. We interpret this as evidence of age-dependent processes of learning, legitimacy building, and resource accumulaton allowing start-ups to reap the benefits while mitigating negative effects of MNE proximity. Interestingly, we show that the documented effects are more pronounced for service firms, particularly in the knowledge-intensive sectors.