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Foreign Direct Investment and the Incentives to Innovate and Imitate

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  • Irene Brambilla
  • Galina Hale
  • Cheryl Long

Abstract

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm‐level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.

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  • Irene Brambilla & Galina Hale & Cheryl Long, 2009. "Foreign Direct Investment and the Incentives to Innovate and Imitate," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 835-861, December.
    • Handle: RePEc:bla:scandj:v:111:y:2009:i:4:p:835-861
    DOI: 10.1111/j.1467-9442.2009.01589.x
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    Cited by:

    1. Lim, King Yoong, 2019. "Industrial Transformation With Heterogeneous Labor And Foreign Experts," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3225-3266, December.
    2. Ausloos, Marcel & Eskandary, Ali & Kaur, Parmjit & Dhesi, Gurjeet, 2019. "Evidence for Gross Domestic Product growth time delay dependence over Foreign Direct Investment. A time-lag dependent correlation study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 527(C).
    3. Shankar Gimire & Kul Kapri & Md Rajib-Ur Rahman, 2018. "Imitate or Innovate? FDI, Technology, and Income Levels in Middle Income Countries," Journal of Development Innovations, KarmaQuest International, vol. 2(1), pages 1-13, May.
    4. Dea Tusha & Jacob A. Jordaan, 2021. "Biased FDI spillovers in incomplete datasets: An empirical examination," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 582-600, May.
    5. Li, Xiaoyang & Liu, Antung A., 2019. "Imitating to export," China Economic Review, Elsevier, vol. 53(C), pages 254-270.
    6. Allard, Gayle & Williams, Christopher, 2020. "National-level innovation in Africa," Research Policy, Elsevier, vol. 49(7).
    7. King Yoong Lim & Diego Morris, 2023. "Firm‐level impact of the global financial crisis: Evidence on innovation from Latin America," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3902-3917, October.
    8. Wen Yue, 2022. "Foreign direct investment and the innovation performance of local enterprises," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.
    9. Wang, Miao & Wong, M. C. Sunny, 2012. "International R&D Transfer and Technical Efficiency: Evidence from Panel Study Using Stochastic Frontier Analysis," World Development, Elsevier, vol. 40(10), pages 1982-1998.
    10. Antonietti, Roberto & Franco, Chiara, 2021. "From FDI to economic complexity: a panel Granger causality analysis," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 225-239.
    11. Roberto Antonietti & Raffaello Bronzini & Giulio Cainelli, 2015. "Inward greenfield FDI and innovation," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(1), pages 93-116, March.
    12. Zefeng Mi & Zhixin Qiu & Gang Zeng & Can Zhou & Lei Ye, 2023. "The innovation effect of low‐carbon technology transfer from the perspective of carbon emission reduction demand: A case study of the Yangtze River Economic Belt in China," Growth and Change, Wiley Blackwell, vol. 54(2), pages 625-648, June.
    13. Yi Qu & Yingqi Wei, 2017. "The Role of Domestic Institutions and FDI on Innovation—Evidence from Chinese Firms," Asian Economic Papers, MIT Press, vol. 16(2), pages 55-76, Summer.
    14. Die Wu & Shuzhen Zhu & Aftab Ahmed Memon & Hafeezullah Memon, 2020. "Financial Attributes, Environmental Performance, and Environmental Disclosure in China," IJERPH, MDPI, vol. 17(23), pages 1-14, November.
    15. King Yoong Lim & Shuonan Zhang, 2023. "Optimal fiscal management in an economy with resource revenue‐financed government‐linked companies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2202-2225, April.
    16. Nakhoda, Aadil, 2012. "The effect of foreign competition on product switching activities: A firm level analysis," MPRA Paper 39167, University Library of Munich, Germany.
    17. Yi Qu & Yingqi Wei & Tao Jiang & Nan Zheng, 2017. "Linking R&D strategy, national innovation system and FDI to firm performance," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(1), pages 41-58, January.
    18. Ascani, Andrea & Gagliardi, Luisa, 2020. "Asymmetric spillover effects from MNE investment," Journal of World Business, Elsevier, vol. 55(6).
    19. Deborah L. Swenson & Huiya Chen, 2014. "Multinational Exposure and the Quality of New Chinese Exports," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(1), pages 41-66, February.
    20. repec:kqi:journl:2018-2-1-3 is not listed on IDEAS

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