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Innovation, productivity and foreign direct investment-induced R&D spillovers

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  • Shireen AlAzzawi

Abstract

This article examines the effect of foreign direct investment on innovation and productivity in the host and home countries. I investigate how the flows of knowledge transmitted through FDI affect the production of knowledge in both source and recipient countries, as well as how these flows affect productivity. Using patent citations within FDI as the measure of the degree of ‘access’ that one nation gains to the R&D knowledge of another, and new patents as the measure of innovation, results reveal that there are large differences in the way FDI affects innovation and productivity between countries that are technological leaders, and technological followers. Both inward and outward FDI are found to have a strong positive effect on domestic innovation and productivity in countries that are technological followers. For technological leaders, outward FDI is highly conducive to increased domestic innovation , while inward FDI seems to increase competition between domestic and foreign firms, making it more difficult to come up with new viable ideas. As for domestic productivity , inward FDI is highly beneficial for technological leaders, while outward FDI does not have a significant effect. I conclude that technological followers have much to gain from FDI-induced R&D spillovers, and therefore governments in these countries will find it worthwhile to attract foreign multinationals, while those in the more technologically advanced economies need to weigh the costs and benefits of FDI carefully.

Suggested Citation

  • Shireen AlAzzawi, 2012. "Innovation, productivity and foreign direct investment-induced R&D spillovers," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(5), pages 615-653, August.
  • Handle: RePEc:taf:jitecd:v:21:y:2012:i:5:p:615-653
    DOI: 10.1080/09638199.2010.513056
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    References listed on IDEAS

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    1. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    2. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2001. "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools," NBER Working Papers 8498, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Vujanović, Nina & Radošević, Slavo & Stojčić, Nebojša & Hisarciklilar, Mehtap & Hashi, Iraj, 2022. "FDI spillover effects on innovation activities of knowledge using and knowledge creating firms: Evidence from an emerging economy," Technovation, Elsevier, vol. 118(C).
    2. Juana Sanchez, 2014. "Innovation Output Choices And Characteristics Of Firms In The U.S," Working Papers 14-42, Center for Economic Studies, U.S. Census Bureau.
    3. Hui Wang & Xin Zhong, 2023. "An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects," SAGE Open, , vol. 13(1), pages 21582440231, February.
    4. Yuegang Song & Feng Hao & Xiazhen Hao & Giray Gozgor, 2021. "Economic Policy Uncertainty, Outward Foreign Direct Investments, and Green Total Factor Productivity: Evidence from Firm-Level Data in China," Sustainability, MDPI, vol. 13(4), pages 1-16, February.
    5. Shankar Ghimire & Nawaraj Sharma Paudel, 2019. "R&D, FDI, and Innovation: Examination of the Patent Applications in the OECD Countries," Journal of Development Innovations, KarmaQuest International, vol. 3(2), pages 1-11, December.
    6. Huang, Yanghua & Salike, Nimesh & Yin, Zhifeng & Zeng, Douglas Zhihua, 2017. "Enterprise innovation in China: Does ownership or size matter?," RIEI Working Papers 2017-06, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    7. Paul Oldham & Stephen Hall & Oscar Forero, 2013. "Biological Diversity in the Patent System," PLOS ONE, Public Library of Science, vol. 8(11), pages 1-16, November.
    8. Mengzhen Wang & Baekryul Choi, 2023. "An Analysis of the Impact of International R&D Spillovers and Technology Innovation in China," Sustainability, MDPI, vol. 15(3), pages 1-25, January.
    9. Kun-Ming Chen & Shu-Fei Yang, 2013. "Impact of Outward Foreign Direct Investment on Domestic R&D Activity: Evidence from Taiwan's Multinational Enterprises in Low-wage Countries," Asian Economic Journal, East Asian Economic Association, vol. 27(1), pages 17-38, March.
    10. Viktor Prokop & Jan Stejskal, 2015. "Determinants of machinery firms' innovation activity - case study from the Czech Republic," ERSA conference papers ersa15p1111, European Regional Science Association.
    11. Juana Sanchez, 2014. "Non-technological and Mixed Modes of Innovation in the United States. Evidence from the Business Research and Development and Innovation Survey, 2008-2011," Working Papers 14-35, Center for Economic Studies, U.S. Census Bureau.
    12. Yuanxi Li & Tieshan Sun & Yukang Sun, 2024. "Linkage‐ and structure‐based technological proximity and interregional spillovers of innovation growth," Growth and Change, Wiley Blackwell, vol. 55(1), March.

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