Why and How Local Presence of Domestic and Foreign Firms Affects New Firm Formation?

We investigate space-based factors of domestic and foreign firm entry. For domestic entry, density of foreign and domestic firms matter, both locally and in the neighbourhood. For foreign entry, only local density of both foreign and domestic firms matter. To test related hypotheses we utilise data for Polish municipalities. We apply multilevel (hierarchical; three levels) models that treat domestic and foreign entry as functions of lagged density of both types of firms and other municipality characteristics, and allow the relationships to vary across municipalities and counties. We use a row-normalised queen contiguity matrix to capture spatial relationships and to weight observations in the neighbouring regions.