15 Nationality of Firm Ownership in Developing Countries: Who Should ‘Crowd Out’ Whom in Imperfect Markets?

Abstract

Abstract In traditional theory, the nationality of an enterprise shouldn't matter to economic development. Whether a firm is a foreign-owned subsidiary of a multinational (FOE), or a private nationally owned enterprise in the developing world (POE), development will be the same so long as markets are perfect. However, this is no longer the case in markets that are monopolistic. Firms incorporate specific forms of knowledge and the location of ownership contributes to determine technological and production strategies. In these circumstances, the nationality of ownership does matter. Whether a developing economy is dominated by FOEs or POEs, its mid-tech or (mature) high-tech sectors affect the rates of learning and expansion of productive capacity. In fact, the chapter argues that crowding out of POEs by FOEs in such industries is not development friendly.

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