Economic nationalism and the uneven fate of domestic firms: why small businesses exit

Abstract

Purpose Economic nationalism is commonly justified as a policy approach that prioritizes domestic firms and strengthens national economies. However, existing research largely assumes that domestic firms benefit uniformly from such policies. This study challenges that assumption by examining how economic nationalist policies may generate uneven outcomes across domestic firms, particularly disadvantaging small businesses. The purpose of this study is to develop a conceptual framework explaining how economic nationalism can unintentionally increase small business exit. Design/methodology/approach This study develops a conceptual model integrating insights from the economic nationalism literature, the liability of smallness perspective and research on learned helplessness. Drawing on prior work in institutional theory and entrepreneurship, the paper theorizes how protectionist policies, often implemented through a combination of incentives and restrictions, create asymmetric effects across firms of different sizes. The framework proposes a mechanism through which these policy-induced asymmetries influence small business owners' psychological responses and exit decisions. Findings The paper proposes that economic nationalism policies generate structural asymmetries across domestic firms. Larger firms are better positioned to capture policy benefits and absorb regulatory shocks, whereas small firms face disproportionately higher operational constraints due to limited resources and the liability of smallness. These persistent disadvantages may lead small business owners to experience psychological distress and learned helplessness, which can increase the likelihood of small business exit. Originality/value This study contributes to the literature on economic nationalism by introducing firm heterogeneity into analyses of protectionist policy outcomes. While prior research primarily compares domestic and foreign firms, this study highlights variation within domestic firms and demonstrates how firm size conditions policy impacts. By linking institutional policy shifts to entrepreneurial psychological responses and exit decisions, this paper advances our understanding of how macro-level policy changes influence entrepreneurial outcomes.