Inside the entrepreneur's mind: an investigation of the perceived importance of public support for outward foreign direct investment

Abstract

An interesting debate is now taking place among scholars and policy makers about the value of public support for internationalization activities. These incentives have been applied in many countries to stimulate not only the exports but also foreign direct investments, but the results are not clear. Governments must ensure that beyond the increase of a country's competitiveness, public support also will promote equity between rms. Assuming that the perceived importance of public support is a proxy of equity between rms, we have a scenario where the promotion of equity can be obtained if the less skilled rms place more value on support than rms with more competencies. In the same line of reasoning and extending the analysis to the rm's external environment, the equity increases if rms involved in more demanding environments place more value on support than rms whose investments are in less demanding environments. We propose an ordered probit model that considers the rms' competencies and the requirements of foreign direct investments as sources of variation for the evaluation of the perceived importance of public support. This model is tested on four policy measures of a recent survey that includes 104 Portuguese rms with foreign direct investment. The overall results reveal that public support may promote equity since rms' competencies have a negative e ect on the perceived importance of public support, and the requirements of foreign direct investment positively moderate the value assigned to public support. We conclude that a non-uniform evaluation of public support may roughly predict the promotion of equity through a positive discrimination in favor of rms with less competencies and involved in more demanding projects of foreign direct investments. Despite the use of representative sample, this study is exploratory and has at least two limitations that prevent a generalization of the ndings. The rst limitation is from the nature of the sample, which was built with rms from a small country. We do not consider any spatial di erences that could arise with the inclusion of rms from other countries. The second limitation derives from the fact that the model does not consider any time variation. The importance of public support may change in di erent periods of time, e.g., during periods of recession, public support may have more importance than in other periods. We only can caught the e ect of support during a period of crisis, 2009{2010. Despite these limitations, the study could help to understand how entrepreneurs assess public support and how public support can promote equity between firms.