Effect of inward foreign direct investment on entrepreneurship productivity in emerging markets

This study explores the effect of inward foreign direct investment (FDI) on entrepreneurship productivity, which reflects the quality of entrepreneurship and is measured through the ratio of opportunity-to-necessity entrepreneurship, in emerging markets. Using data across 67 emerging markets during 2002 and 2018, we find that inward FDI has a positive effect on entrepreneurship productivity and this effect is positively moderated by both financial market efficiency and labor market flexibility. However, these effects are not found in developed economies. This study not only enriches our knowledge of the antecedents of entrepreneurship productivity and the value of inward FDI, but also helps explain why some emerging markets benefit to a greater extent from inward FDI than others. Moreover, it provides guidance for emerging market governments taking advantage of inward FDI to improve entrepreneurship productivity.