Firm Ownership, FOEs, and POEs
Alice H. Amsden
#2009-048
Where the theory of free competition reigns, developing countries should
open their arms to investments from all types of enterprises in order to
maximize jobs. Ownership, measured by votes of shareholders or boards of
directors, is immaterial to performance. Matters change drastically,
though, when competition depends on monopolistic assets and market
theory no longer rigorously holds. Then, ownership matters. Foreign
owned enterprises from developed countries can ‘crowd out’ privately
owned enterprises from developing countries. They can break their back
before they have a chance to acquire their own assets. FOEs in direct
competition with POEs are not necessary for economic development to
flourish, and it is dangerous for a promising POE to confront a
privileged FOE in its own back yard, often with the backing of the
FOEe’s powerful government. In this paper it is argued that because
assets differ systematically between FOEs and POEs in their respective
stages of evolution, FOEs may not contribute more to economic
development in monopolistic industries than POEs. Indeed, the best POEs
in the fastest growing emerging economies (e.g. Korea’s Samsung, India’s
Tata, and Brazil’s Embraer) tend to be more entrepreneurial than FOEs.
The paper discusses the contribution of POEs vis-à-vis FOEs to economic
development in emerging economies.
Keywords: entrepreneurship, foreign investment, firm ownership,
industrialization
JEL classification: L22, L52, L26
UNU-MERIT Working Papers
ISSN 1871-9872