Beyond direct impact: Exploring inward FDI’s multifaceted effects on new venture creation

Abstract

Research on the impact of inward foreign direct investment (IFDI) on new venture creation has primarily focused on the country level, often yielding inconsistent findings. To reconcile these inconsistencies, we develop a theory on the influence of IFDI stock on new venture creation at the industry-regional level, offering three possible complementary explanations. Drawing on learning and competition theories, we propose that IFDI in a specific industry and region has an inverted U-shaped effect on new venture creation, driven by the dual forces of learning opportunities and competitive threats anticipated by prospective entrepreneurs. Additionally, we found that IFDI in related industries in the focal region and IFDI in the focal industry in adjacent regions positively influence new venture creation. Furthermore, we argue that these effects are amplified in regions with more developed non-state economy. Analyzing data on all registered firms (2013−2023) collected from China National Enterprise Credit Information Publicity System provides robust support for our hypotheses. The findings make important theoretical contributions to research on foreign direct investment and entrepreneurship, as well as to the literature on learning and competition.