Inward FDI, concentration and profitability in the CEECS: Were the domestic firms crowded out or strenghtened?

This article examines the impact of foreign direct investment -FDI) on domestic market concentration and profitability in 13 Central and East European Countries. The Hypotheses are tested with linear and non-linear regressions using firm-level data form the BEEPS II database complied by the EBRD and the World Bank. The endogeneity between the ratio of FDI stock to GDP and domestic profitability and concentration is eliminated by using instrumental variables capturing the business envirenment. It appears that FDI has strengthened domestic enterprises, increasing their profitability and reducing concentration in those countries.