The Importance of FDI on Stimulating Entrepreneurship – A Regional Study in the Case of Romania

Abstract

Abstract The world economy has been developing at a very fast pace for the past few decades, growth which is commonly linked to the development of technology. Innovative ideas become successful when certain individuals decide to face the multiple risks that appear when transforming these ideas in to reality. The vast literature on entrepreneurship has shown that startups are important players in driving the economy on an ascending path. It is no surprise that highly developed countries, such as USA, Israel or Singapore have governmental programs which stimulate startup creation. More recently, the Romanian government has also joined in on spending money to offer entrepreneurs the chance to create successful businesses. Using spatial panel data on the 41 counties of Romania and the capital, Bucharest, on the period 2011-2016, this study highlights some significant dependencies between the survival of startups (for a period of 3 years) and other factors – both internal and external. The analysis shows that the aforementioned survival is clearly and positively impacted by Foreign Direct Investment, the share of fresh businesses in the total business environment and the number of immigrants with a permanent residence in the respective counties. Moreover, there are significant spatial effects occurring between neighboring counties. These results suggest that foreign investors could benefit from bringing their capital in Romania, as startups greatly contribute to the specialization of markets, and moreover, spillover effects present suggest that a smaller number of investment centers can be highly effective in their regions.