Inward foreign direct investment (IFDI) is known to be a significant driver of local economic development, especially in fostering entrepreneurship. Current studies have conducted in-depth investigations into the impact of IFDI on the survival, productivity, and innovation of established firms. Recently, a growing body of work has started to examine its influence on entrepreneurship and new venture creation. Notably, most of these studies leverage a broad, country-level perspective and often yield inconsistent findings. This represents a notable gap in existing literature on IFDI, particularly in the context of large emerging economies where substantial within-country variation exists. For instance, China and India demonstrate pronounced regional and industrial heterogeneity, necessitating further fine-grained analyses.
In a new study, an international team of researchers, led by Assistant Professor Lingli Luo from the International Business School at Zhejiang University (ZIBS), China, and including Professor Junichi Yamanoi from the School of Commerce at Waseda University, Japan, Dr. Xufei Ma from the Department of Management at Chinese University of Hong Kong, Hong Kong, and Dr. Linan Lei from ZIBS, has explored the multifaceted effects of IFDI on new venture creation. Their insightful findings were made available online on December 12, 2025, and will be published in Volume 41, Issue 2 of the Journal of Business Venturing on March 1, 2026.
Luo highlights the key contributions of their work. "The impact of IFDI on local ventures—bringing both learning opportunities and competitive threats—is a long-standing debate. We address this issue by examining how IFDI shapes new venture creation at the industry-regional (subnational) level, moving beyond country-level analyses. Specifically, we establish three distinct ways in which IFDI influences new venture creation: a nonlinear effect of within-boundary IFDI, a spillover effect of cross-boundary IFDI, and a contingent effect shaped by local institutions."
The team utilizes learning and competition theories to argue that IFDI in a specific industry and region has an inverted U-shaped effect, where moderate IFDI levels stimulate the maximum level of new venture creation. This phenomenon is driven by dual forces: learning opportunities and competitive threats anticipated by prospective entrepreneurs.
Moreover, IFDI in the focal industry in adjacent regions, as well as in related industries in the focal region, both promote new venture creation. The present study identifies adaptation-based learning and imitation-based learning from IFDI in related industries and in adjacent regions, respectively. It further highlights that a supportive institutional environment, such as a highly developed non-state economy in the focal region, boosts the effects of IFDI at the industry-regional level.
The researchers carried out empirical analysis to validate their proposals. They analyzed the China National Enterprise Credit Information Publicity System data on all registered firms in China between 2013 and 2023, demonstrating robust support for their hypotheses.
"Our study provides actionable guidance for designing industrial policies that leverage IFDI to stimulate local entrepreneurship. Our findings show that IFDI exerts a dual influence: moderate levels foster learning opportunities, while excessive IFDI can deter entrepreneurial entry through intensified competition. Local governments should therefore calibrate IFDI inflows to maintain an entrepreneurship-enhancing balance," points out Yamanoi.
Overall, this work makes significant theoretical contributions to research on FDI and entrepreneurship, and to the literature on learning and competition.
