KNOWLEDGE CONNECTIVITY IN SOUTH ASIA l 167
FIGURE 4.9 Varying Reduction of Fixed Entry Costs of Investing Based on Level of Information Frictions Learning from unrelated (competitor) pioneer experience. High information frictions
fEX
fFDI_EX/NEQ
fFDI_Related_Follower
Biggest drop in fixed costs: Learning from own export experience. Least information frictions.
fFDI_Unrelated_Follower
fFDI
Rising fixed costs of entry
Learning from experience of related (conglomerate) pioneer. Intermediate information frictions
Source: World Bank. Note: The main arrow marks fixed entry costs in increasing order from lowest (fEX) to highest (fFDI) fEX = sunk entry costs of exporting fFDI_EX/NEQ = sunk entry costs of investing, given own prior exporting or other nonequity engagement fFDI_Related_Follower = sunk entry costs of investing, given prior entry of a related firm in the firm’s business group or conglomerate fFDI_Unrelated_Follower = sunk entry costs of investing, given prior entry of an unrelated pioneer in the same industry fFDI = sunk entry costs of investing This figure illustrates that a follower firm faces high information frictions when learning from a competitor firm’s experience of entry in the previous period, as reflected by a small drop in fixed entry costs (fFDI − fFDI_Unrelated_Follower). The largest drop in fixed entry costs of investing is achieved from the firm’s own learning experience in exporting (fFDI − fFDI_EX/NEQ).
ENTREPRENEURS WITH HIGH RISK APPETITE ARE MORE LIKELY TO INVEST ABROAD It is important to take into consideration the characteristics of the entrepreneur in understanding firm behavior (Cusolito and Maloney 2018), as has been backed up by research on management quality and culture and the psychological traits of successful entrepreneurs (Bloom et al. 2013). The characteristics of the entrepreneur are also related to behavioral economics and issues such as why people may not use the information they have (Handel and Schwartzstein 2018; Kremer, Villamor, and Aguinis 2019). Entrepreneurship in the region before the 1990s was subdued, which sociologists have attributed to a British education system geared toward producing graduates with a high preference for service and the episodes of socialism that involved large public sectors and tight control of the private sector. Analysts have also discussed the “attitude” of some state bureaucracies toward entrepreneurs and the role of this attitude in reform (see Panagariya [2005] for a discussion of different views). In addition, society was risk averse and individuals placed a high value on employment stability (Jagannathan et al. 2017).
