Exploring Relationship Between Foreign Competition and Entrepreneurship

Globalization has increased trading activity among countries. In this article, we examine how foreign competition and human capital influence entrepreneurial activity in the host country over time. We propose that foreign competition fosters knowledge spillovers and consequently leads to new firm entry. We build on the competence based argument to suggest that these spillovers are strengthened by the availability of human capital. Based on a comprehensive panel dataset of employees and new firms in Portugal between 1994 and 2008, our findings demonstrate that the impact of foreign competition on domestic entrepreneurial activity is not always positive rather the availability of human capital moderates this relationship. We also find strong support for the positive effect of foreign competition on quality of the initial team. Our results are supported using several robustness analysis. JEL: J63, L26, L25.