Protectionist policies and diversity of entrepreneurial types

Abstract

In recent years, there have been vigorous debates on whether restricting the operations of foreign multinational enterprises (MNEs) through various protectionist policies would allow local entrepreneurs to flourish. Research suggests that, although knowledge spillovers from MNEs can provide positive impetus to local entrepreneurship, MNE may also crowd out entrepreneurial firms. In this study, we examine how policies restricting MNEs’ entry affect local entrepreneurship, especially the diversity of the new firms being created. Using an agent-based simulation of an ecosystem, we model the dynamic interplay between MNEs’ knowledge spillover and diversity of local entrepreneurship and how two protectionist policies—tariffs on imports and subsidies for local entrepreneurs—impact this dynamic. We develop a fine-grained understanding of how such policies can both enhance and constrain different types of local entrepreneurship.