Transformations  in
Business & Economics

FOREIGN DIRECT INVESTMENT, COMPETITION AND MARKUP SIZE OF FIRMS
Nina Ponikvar, Katja Zajc Kejzar

ABSTRACT.The study investigates the impact of FDI on performance of Slovenian manufacturing firms and the level of competition in manufacturing industries by examining how foreign firms' entry and their presence affect the incumbent firms' markup size. The study covers the whole population of Slovenian manufacturing firms and considers the initial market structure as a factor that determines the nature of the FDI impact on performance of domestic firms and on industries' competitive process. Results based on the dynamic panel model estimates confirm the presence of the competition effect of inward FDI, as well as show that the effects of foreign firms' entry and activity on domestic firms' performance and the nature of the induced competitive process depend strongly on the initial industry market structure. No evidence of the horizontal productivity spillover effects is found. Results, however, suggest that geographical proximity plays an important role in the ability of local firms to benefit from foreign firms presence and show that the inter-industry productivity spillover effects are most pronounced in the medium-concentrated industries .

KEYWORDS: FDI, competition, manufacturing, markup size, productivity spillovers, Slovenia.

JEL classification: F23, L11, L25, C23.