  Despite the key role of multinational enterprises (MNEs) in both
international markets and domestic economies, there is no consensus on their
impact on their host economy. In particular, do MNEs stimulate new domestic
firms through knowledge spillovers? Here, we look at the impact of MNEs on the
entry and exit of domestic industries in Irish regions before, during, and
after the 2008 Financial Crisis. Specifically, we are interested in whether the
presence of MNEs in a region results in knowledge spillovers and the creation
of new domestic industries in related sectors. To quantify how related an
industry is to a region's industry basket we propose two cohesion measures,
weighted closeness and strategic closeness, which capture direct linkages and
the complex connectivity structure between industries in a region respectively.
We use a dataset of government-supported firms in Ireland (covering 90% of
manufacturing and exporting) between 2006-2019. We find that domestic
industries are both more likely to enter and less likely to leave a region if
they are related to so-called 'overlapping' industries containing both domestic
and MNE firms. In contrast, we find a negative impact on domestic entry and
survival from cohesion to 'exclusive MNE' industries, suggesting that domestic
firms are unable to 'leap' and thrive in MNE-proximate industries likely due to
a technology or know-how gap. This dynamic was broken, with domestic firms
entering MNE exclusive sectors, by a large injection of Brexit diversification
funds in 2017-18. Finally, the type of cohesion matters. For example, strategic
rather than weighted closeness to exclusive domestic sectors matters for both
entries and exits.
