Fdi spillover effects on innovation activities of knowledge using and knowledge creating firms: evidence from an emerging economy

Vujanovic, Nina and Radosevic, Slavo and Stojcic, Nebojsa and Hisarciklilar, Mehtap and Hashi, Iraj (2022): Fdi spillover effects on innovation activities of knowledge using and knowledge creating firms: evidence from an emerging economy. Forthcoming in: Technovation

Abstract

The beneficial effects of innovation for firm performance and competitiveness are well established but it has been suggested in recent years that innovation regimes differ between advanced and emerging economies. While advanced economies rely on knowledge generation, their emerging counterparts follow mainly knowledge use regime through the application of existing knowledge and technology. Climbing up the technological ladder can be helped through spillovers from foreign investors to local firms. We investigate whether FDI spillovers influence different phases of innovation process (from decision to innovate to productivity) among knowledge using and knowledge creating firms in an emerging European economy. The results show that innovation process in emerging economies is closer to imitation than creation of novel products. Local firms benefit from foreign counterparts in the early phase of innovation process. Stronger FDI effects are found on firms that undertake innovation through knowledge use than through knowledge generation.

• Item Type: MPRA Paper
• Language: English
• Keywords: knowledge use; knowledge generation; FDI; innovation; emerging economy
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

References

Aghion, P., Blundell, R., Griffith, R., Howitt, P., & Prantl, S. (2009). The effects of entry on incumbent innovation and productivity. The Review of Economics and Statistics, 91(1), 20-32.

Aitken, B. J., & Harrison, A. E. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89(3), 605-618.

Autant‐Bernard, C., & LeSage, J. P. (2011). Quantifying knowledge spillovers using spatial econometric models. Journal of Regional Science, 51(3), 471-496.

Barrios, S., Bertinelli, L., & Strobl, E. (2006). Coagglomeration and spillovers. Regional Science and Urban Economics, 36(4), 467-481.

Blalock, G., & Gertler, P. J. (2008). Welfare gains from foreign direct investment through technology transfer to local suppliers. Journal of international Economics, 74(2), 402-421.

Boschma, R. (2005). Proximity and innovation: a critical assessment. Regional Studies, 39(1), 61-74.

Cirera Xavier and William F. Maloney (2017) The Innovation Paradox. Developing-Country Capabilities and the Unrealized Promise of Technological Catch-Up, The World Bank, Washington

Crépon, B., Duguet, E., & Mairessec, J. (1998). Research, innovation and productivi [Ty: an econometric analysis at the firm level. Economics of Innovation and new Technology, 7(2), 115-158.

Crescenzi, R., Gagliardi, L., & Iammarino, S. (2015). Foreign multinationals and domestic innovation: Intra-industry effects and firm heterogeneity. Research Policy, 44(3), 596-609.

Cheung, K. Y., & Ping, L. (2004). Spillover effects of FDI on innovation in China: Evidence from the provincial data. China Economic Review, 15(1), 25-44.

Cohen, W. M., & Levinthal, D. A. (1989). Innovation and learning: the two faces of R & D. The Economic Journal, 99(397), 569-596.

Damijan, J. P., Kostevc, Č., & Rojec, M. (2011). Innovation and firms’ productivity growth in Slovenia: Sensitivity of results to sectoral heterogeneity and to estimation method. In Nijkamp, P. and Siedschlag, I. (eds.) Innovation, Growth and Competitiveness (165-193). Springer, Berlin, Heidelberg.

Damijan, J. P., Rojec, M., Majcen, B., & Knell, M. (2013). Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries. Journal of Comparative Economics, 41(3), 895-922.

Dasgupta, K. (2012). Learning and knowledge diffusion in a global economy. Journal of International Economics, 87(2), 323-336.

Du, L., Harrison, A. E., & Jefferson, G. H. (2011). Do Institutions Matter for FDI Spillovers? The Implications of China's " Special Characteristics" (August 1, 2011). World Bank Policy Research Working Paper (5757).

Eapen, A., Yeo, J. & Sasidharan, S. (2019), Finance constraints and technology spillovers from foreign to domestic firms, Economic Modelling, 76, 50–62.

Fu, X. (2008). Foreign direct investment, absorptive capacity and regional innovation capabilities: Evidence from China. Oxford Development Studies, 36(1), 89-110. doi:10.1080/13600810701848193

Fu, W., Diez, J. R., & Schiller, D. (2013). Interactive learning, informal networks and innovation: Evidence from electronics firm survey in the Pearl River Delta, China. Research Policy, 42(3), 635-646.

Fujita, M., & Thisse, J. (2002). Economics of agglomeration: Cities, industrial location, and regional growth (1. publ. ed.). New York: Cambridge University Press

García, F., Jin, B., & Salomon, R. (2013). Does inward foreign direct investment improve the innovative performance of local firms?. Research Policy, 42(1), 231-244.

Girma Sourafel, Gong Yundan, & Görg Holger. (2008). Foreign direct investment, access to finance, and innovation activity in Chinese enterprises. The World Bank Economic Review, 22(2), 367-382. doi:10.1093/wber/lhn009

Gorodnichenko, Y., Svejnar, J., & Terrell, K. (2014). When does FDI have positive spillovers? Evidence from 17 transition market economies. Journal of Comparative Economics, 42(4), 954-969.

Greenaway, D., Sousa, N., & Wakelin, K. (2004). Do domestic firms learn to export from multinationals?. European Journal of Political Economy, 20(4), 1027-1043.

Griffith, R., Huergo, E., Mairesse, J., & Peters, B. (2006). Innovation and productivity across four European countries. Oxford Review of Economic Policy, 22(4), 483-498.

Griliches, Z. (1979). Issues in assessing the contribution of research and development to productivity growth. The Bell Journal of Economics, 92-116.

Halpern, L., & Muraközy, B. (2007). Does distance matter in spillover? Economics of Transition, 15(4), 781-805.

Hamida, L. B. (2013). Are there regional spillovers from FDI in the Swiss manufacturing industry?. International Business Review, 22(4), 754-769.

Hashi, I., & Stojčić, N. (2013). The impact of innovation activities on firm performance using a multi-stage model: Evidence from the community innovation survey 4. Research Policy, 42(2), 353-366.

Haskel, J. E., Pereira, S. C., & Slaughter, M. J. (2007). Does inward foreign direct investment boost the productivity of domestic firms?. The Review of Economics and Statistics, 89(3), 482-496.

Iammarino, S., Piva, M., Vivarelli, M., & Von Tunzelmann, N. (2012). Technological capabilities and patterns of innovative cooperation of firms in the UK regions. Regional Studies, 46(10), 1283-1301.

Ito, B., Yashiro, N., Xu, Z., Chen, X., & Wakasugi, R. (2012). How do Chinese industries benefit from FDI spillovers?. China Economic Review, 23(2), 342-356.

Javorcik, B. Smarzynska (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94(3), 605-627.

Javorcik, B. S., & Spatareanu, M. (2011). Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors. Journal of Development Economics, 96(1), 126-138.

Khachoo, Q., Sharma, R., & Dhanora, M. (2018). Does proximity to the frontier facilitate FDI-spawned spillovers on innovation and productivity?. Journal of Economics and Business, 97, 39-49.

Kokko, A., & Kravtsova, V. (2012). Regional characteristics and effects of inward FDI: the case of Ukraine. Organizations and Markets in Emerging Economies, 3(2), 91-118.

Kravtsova, V., and S. Radosevic. (2012) “Are systems of innovation in Eastern Europe efficient?” Economic Systems, 36:1: 109−126.

Kumaraswamy, A., Mudambi, R., Saranga, H. and Tripathy, A. (2012). Catch-up Strategies in the Indian Auto Components Industry: Domestic Firms' Responses to Market Liberalization. Journal of International Business Studies, 43, 368-395.

Lööf, H., & Heshmati, A. (2002). Knowledge capital and performance heterogeneity: A firm-level innovation study. International Journal of Production Economics, 76(1), 61-85.

Lööf, H., & Heshmati, A. (2006). On the relationship between innovation and performance: A sensitivity analysis. Economics of Innovation and New Technology, 15(4-5), 317-344.

Lu, Y., Tao, Z., & Zhu, L. (2017). Identifying FDI spillovers. Journal of International Economics, 107, 75-90.

Mowery, D. C., & Oxley, J. E. (1995). Inward technology transfer and competitiveness: the role of national innovation systems. Cambridge journal of economics, 19(1), 67-93.

Nelson, R. R., & Phelps, E. S. (1966). Investment in humans, technological diffusion, and economic growth. The American Economic Review, 56(1/2), 69-75.

Nicolini, M., & Resmini, L. (2010). Which firms create them and which firms really benefit? FDI spillovers in new EU member states. Economics of Transition, 18(3), 487-511.

Ning, L., Wang, F., & Li, J. (2016). Urban innovation, regional externalities of foreign direct investment and industrial agglomeration: Evidence from Chinese cities. Research Policy, 45(4), 830-843. doi:10.1016/j.respol.2016.01.014

Polder, Michael Leeuwen, George van, Raymond, W., l, & Mohnen, P. (2009). Productivity effects of innovation modes. MPRA Paper No. 18893. Retrieved from http://econpapers.repec.org/paper/pramprapa/18893.htm

Radosevic, S. (1999). International technology transfer policy: from “contract bargaining” to “sourcing”. Technovation, 19(6-7), 433-444.

Radosevic, S. (2015). Synthesis report: WP3. Innovation, entrepreneurship and industrial dynamics. Technology upgrading and innovation policy in Central and Eastern Europe (GRINCOH Working Paper Series, Paper No. 3).

Radosevic S (2016). The role of public research in economic development. In European Commission, Science, Research and Innovation performance of the EU. A contribution to the Open Innovation, Open Science, Open to the World agenda, DG for Research and Innovation, pp119-139. Available at: https://op.europa.eu/en/publication-detail/-/publication/744d5735-e1d4-11e5-8a50-01aa75ed71a1.

Radosevic, S. (2017). Upgrading technology in Central and Eastern European economies. IZA World of Labor 338.

Radosevic, S., & Yoruk, E. (2018). Technology upgrading of middle income economies: A new approach and results. Technological Forecasting and Social Change, 129, 56-75.

Radosevic, S., & Yoruk, E. (2016). Why do we need a theory and metrics of technology upgrading?. Asian Journal of Technology Innovation, 24(sup1), 8-32.

Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002-1037.

Roud, V. (2018). Understanding the heterogeneity of innovation modes: Performance effects, barriers, and demand for state support. Technological Forecasting and Social Change, 133, 238-253.

Saggi, K. (2006). Foreign direct investment, linkages, and technology spillovers. Global Integration and Technology Transfer. 2006, 51-65.

Sinani, E., & Meyer, K. E. (2004). Spillovers of technology transfer from FDI: the case of Estonia. Journal of Comparative Economics, 32(3), 445-466.

Stojcic, N. (2021). Collaborative innovation in emerging innovation systems: Evidence from Central and Eastern Europe. The Journal of Technology Transfer, 46(2). 531-562.

Stojcic, N., & Orlic, E. (2020). Spatial dependence, foreign investment and productivity spillovers in new EU member states. Regional Studies, 54(8), 1057-1068.

Stojcic, N., Srhoj, S., & Coad, A. (2020). Innovation procurement as capability-building: Evaluating innovation policies in eight Central and Eastern European countries. European Economic Review, 121, 103330.

Vahter, P. (2011). Does FDI spur productivity, knowledge sourcing and innovation by incumbent firms? Evidence from manufacturing industry in Estonia. The World Economy, 34(8), 1308-1326.

Vujanovic, N., Stojcic, N., & Hashi, I. (2021). FDI spillovers and firm productivity during crisis: Empirical evidence from transition economies. Economic Systems, doi.org/10.1016/j.ecosys.2021.100865.

World Bank (2020) Foreign direct investment, net inflows (% of GDP) https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?end=2019&start=1970

Zhang, L. (2017). The knowledge spillover effects of FDI on the productivity and efficiency of research activities in China. China Economic Review, 42, 1-14. doi:10.1016/j.chieco.2016.11.001

Zellner, A., & Theil, H. (1992). Three-stage least squares: simultaneous estimation of simultaneous equations. In Theil, Henri, Contributions to Economics and Econometrics (147-178). Springer, Dordrecht.