Does Foreign Direct Investment Boost Innovation? The Case of the Visegrad and Baltic Countries
Abstract
Purpose: The purpose of the paper is to examine the impact of inward and outward foreign direct investment on innovation performance of the Visegrad and Baltic countries.
Methodology/Approach: The study follows an open-system approach to consider the determinants of national innovation performance, taking into account both inward and outward FDI. We use two-step analysis that combines panel data regression analysis with the design of two FDI – innovation performance matrixes.
Findings: The results of the study provide evidence that only outward foreign direct investment of domestic firms contributes significantly to the innovation performance of these countries and that this effect is more visible in the case of the Visegrad countries.
Research Limitation/Implication: The limitations of the study are associated in particular with the selection of SII as a measure of national innovation performance. The use of this indicator is also related to the relatively short period of availability of consistent data, especially in connection with changes in the methodology of SII calculation.
Originality/Value of paper: The policy implications of the paper suggest the need for stronger support of domestic bearers of cross-border capital movements in an attempt to boost national innovation performance.References
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Ozawa, T., 1992. Theory of FDI as a dynamic paradigm of economic development. Transnational Corporations, 1(1), pp.27-54.
Pradhan, J.P. and Singh, N., 2009. Outward FDI and knowledge flows: A study of the Indian automotive sector. Institutions and Economies, 1(1), pp.156-187.
Qu, T., Chen, J., Li, S. and Xiang, H., 2013. Impact of inward FDI, import on domestic innovation: evidence from China. The International Journal of Business and Finance Research, 2013, 7(3), pp.119-136.
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Rodríguez, C., Gómez, C. and Ferreiro, J., 2009. A proposal to improve the UNCTAD’s inward FDI potential index. Transnational Corporations [e-journal], 18(3), pp.85-114. doi: 10.18356/d3e73f33-en.
Santos, G., Afonseca, J., Lopes, N., Félix, M.J. and Murmura, F., 2018. Critical success factors in the management of ideas as an essential component of innovation and business excellence. International Journal of Quality and Service Sciences [e-journal], 10(3), pp.214-232. doi: 10.1108/IJQSS-05-2017-0051.
Sarin, V. and Kumar, S., 2019. Investment abroad and impact at home: A literature review. Global Economy Journal [e-journal], 19(4), pp.419-433. doi: 10.1142/S2194565919300011.
Song, H. and Zhang, M., 2017. Spatial Spillovers of Regional Innovation: Evidence from Chinese Provinces. Emerging Markets Finance and Trade [e-journal], 53(9), pp.2104-2122. doi: 10.1080/1540496x.2017.1284061.
Sultana, N. and Turkina, E., 2020. Foreign direct investment, technological advancement, and absorptive capacity: A network analysis. International Business Review [e-journal], 29(2), 101668. doi: 10.1016/j.ibusrev.2020.101668.
Švandová, E. and Jirásek, M., 2019. On Measuring Countries’ Innovation Performance: Organisational Level Perspective. Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis [e-journal], 67(3), pp.871-881. doi: 10.11118/actaun201967030871.
UNCTAD, 2002. World Investment Report: Transnational Corporations and Export Competitiveness. New York and Geneva: United Nations Publication.
UNCTAD, 2004. World Investment Report: The Shift Towards Services. New York and Geneva: United Nations Publication.
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Urban?íková, N. and Zgodavová, K., 2019. Sustainability, resilience and population ageing along Schengen’s eastern border. Sustainability [e-journal], 11(10), 2898. doi: 10.3390/su11102898.
Wu, J., Ma, Z. and Zhuo, S., 2017. Enhancing national innovative capacity: The impact of high-tech international trade and inward foreign direct investment. International Business Review [e-journal], 26(3), pp.502-514. doi: 10.1016/j.ibusrev.2016.11.001.
Andrijauskiene, M. and Dum?iuvienė, D., 2019. Inward Foreign Direct Investment and National Innovative Capacity. Engineering Economics [e-journal], 30(3), pp.339-348. doi: 10.5755/j01.ee.30.3.22832.
Arun, K. and Yıldırım, D.C., 2017. Effects of foreign direct investment on intellectual property, patents and R&D. Queen Mary Journal of Intellectual Property [e-journal], 7(2), pp.226-241. doi: 10.4337/qmjip.2017.02.05.
Blind, K. and Jungmittag, A., 2004. Foreign Direct Investment, Imports and Innovations in the Service Industry. Review of Industrial Organization [e-journal], 25(2), pp.205-227. doi: 10.1007/s11151-004-3537-x.
Borensztein, E., De Gregorio, J.D. and Lee, J., 1998. How does foreign direct investment affect economic growth? Journal of International Economics [e-journal], 45(1), pp.115-135. doi: 10.1016/s0022-1996(97)00033-0.
Carayannis, E. and Grigoroudis, E., 2014. Linking innovation, productivity, and competitiveness: Implications for policy and practice. The Journal of Technology Transfer [e-journal], 39(2), pp.199-218. doi: 10.1007/s10961-012-9295-2.
Dunning, J.H., 1981. International production and the multinational enterprise. London: Allen & Unwin.
Edquist, C., Zabala-Iturriagagoitia, J.M., Barbero, J. and Zofío, J.L., 2018. On the meaning of innovation performance: Is the synthetic indicator of the Innovation Union Scoreboard flawed? Research Evaluation [e-journal], 27(3), pp.196-211. doi: 10.1093/reseval/rvy011.
European Commission, 2018. European Innovation Scoreboard 2018. Luxembourg: Publications Office of the European Union.
European Commission, 2020. European Innovation Scoreboard 2020. Luxembourg: Publications Office of the European Union.
Fifeková, E. and Nemcová, E., 2015. Impact of FDI on Economic Growth: Evidence from V4 Countries. Periodica Polytechnica Social and Management Sciences[e-journal], 23(1), pp.7-14. doi: 10.3311/ppso.7993.
Filippetti, A., Frenz, M. and Ietto-Gillies, G., 2017. The impact of internationalization on innovation at countries’ level: The role of absorptive capacity. Cambridge Journal of Economics [e-journal], (41)2, pp.413-439. doi: 10.1093/cje/bew032.
Fu, X., Pietrobelli, C. and Soete, L., 2011. The Role of Foreign Technology and Indigenous Innovation in the Emerging Economies: Technological Change and Catching-up. World Development [e-journal], 39(7), pp.1204-1212. doi: 10.1016/j.worlddev.2010.05.009.
Furman, J.L., Porter, M.E. and Stern, S., 2002. The determinants of national innovative capacity. Research Policy [e-journal], 31(6), pp.899-933. doi: 10.1016/s0048-7333(01)00152-4.
Gauselmann, A., Knell, M. and Stephan, J., 2011. What drives FDI in Central–Eastern Europe? Evidence from the IWH-FDI-Micro database. Post-Communist Economies [e-journal], 23(3), pp.343-357. doi: 10.1080/14631377.2011.595148.
Ghazal, R. and Zulkhibri, M., 2015. Determinants of innovation outputs in developing countries. Journal of Economic Studies [e-journal], 42(2), pp.237-260. doi: 10.1108/jes-01-2013-0016.
Gong, G. and Keller, W., 2003. Convergence and polarization in global income levels: A review of recent results on the role of international technology diffusion. Research Policy [e-journal], 32(6), pp.1055-1079. doi: 10.1016/s0048-7333(02)00136-1.
Gorodnichenko, Y., Svejnar, J. and Terrell, K., 2010. Globalization and Innovation in Emerging Markets. American Economic Journal: Macroeconomics [e-journal], 2(2), pp.194-226. doi: 10.1257/mac.2.2.194.
Janoskova, K. and Kral, P., 2019. An in-depth analysis of the summary innovation index in the V4 countries. Journal of Competitiveness [e-journal], 11(2), pp.68-83. doi: 10.7441/joc.2019.02.05.
Kondratiuk-Nierodzińska, M., 2016. Innovation Capabilities In Eu Countries: Have Central And Eastern European Countries Been Catching Up? Journal of Business Economics and Management [e-journal], 17(5), pp.765-779. doi: 10.3846/16111699.2015.1114016.
Konstandina, M.S. and Gachino, G.G., 2020. International technology transfer: Evidence on foreign direct investment in Albania. Journal of Economic Studies [e-journal], 47(2), pp.286-306. doi: 10.1108/jes-02-2018-0076.
Krammer, S.M., 2009. Drivers of national innovation in transition: Evidence from a panel of Eastern European countries. Research Policy [e-journal], 38(5), pp.845-860. doi: 10.1016/j.respol.2009.01.022.
Lei, M., Zhao, X., Deng, H. and Tan, K.C., 2013. DEA analysis of FDI attractiveness for suitable development: Evidence from Chinese provinces. Decision Support Systems [e-journal], 56(1), pp.406-418. doi: 10.1016/J.DSS.2012.10.053.
Li, J., Strange, R., Ning, L.T. and Sutherland, D., 2016. Outward foreign direct investment and domestic innovation performance: Evidence from China. International Business Review [e-journal], 25(5), pp.1010-1019. doi: 10.1016/j.ibusrev.2016.01.008.
Li, Q., Lee, S. and Park, S.W., 2020. The effect of inward and outward foreign direct investment on regional innovation performance: Evidence from China. Global Business & Finance Review [e-journal], 25(1), pp.65-88, doi: 10.17549/gbfr.2020.25.1.65.
Matusik, S.F., Heeley, M.B. and Amorós, J.E., 2019. Home court advantage? Knowledge‐based FDI and spillovers in emerging economies. Global Strategy Journal [e-journal], 9(3), pp.405-422. doi: 10.1002/gsj.1324.
Ozawa, T., 1992. Theory of FDI as a dynamic paradigm of economic development. Transnational Corporations, 1(1), pp.27-54.
Pradhan, J.P. and Singh, N., 2009. Outward FDI and knowledge flows: A study of the Indian automotive sector. Institutions and Economies, 1(1), pp.156-187.
Qu, T., Chen, J., Li, S. and Xiang, H., 2013. Impact of inward FDI, import on domestic innovation: evidence from China. The International Journal of Business and Finance Research, 2013, 7(3), pp.119-136.
Ramzi, T. and Salah, A.B., 2018. The Determinants of Innovation Capacity in the Less Innovative Countries in the Euro-Mediterranean Region. Journal of the Knowledge Economy [e-journal], 9(2), pp.526-543. doi: 10.1007/s13132-015-0347-3.
Remeikiené, R., Belas, J., Kliestik, T. and Smrcka, L., 2020. Quantitative assessment of dynamics of economic development in the countries of the European Union. Technological and Economic Development of Economy [e-journal], 26(4), pp.933-946. doi: 10.3846/tede.2020.12892.
Rodríguez, C., Gómez, C. and Ferreiro, J., 2009. A proposal to improve the UNCTAD’s inward FDI potential index. Transnational Corporations [e-journal], 18(3), pp.85-114. doi: 10.18356/d3e73f33-en.
Santos, G., Afonseca, J., Lopes, N., Félix, M.J. and Murmura, F., 2018. Critical success factors in the management of ideas as an essential component of innovation and business excellence. International Journal of Quality and Service Sciences [e-journal], 10(3), pp.214-232. doi: 10.1108/IJQSS-05-2017-0051.
Sarin, V. and Kumar, S., 2019. Investment abroad and impact at home: A literature review. Global Economy Journal [e-journal], 19(4), pp.419-433. doi: 10.1142/S2194565919300011.
Song, H. and Zhang, M., 2017. Spatial Spillovers of Regional Innovation: Evidence from Chinese Provinces. Emerging Markets Finance and Trade [e-journal], 53(9), pp.2104-2122. doi: 10.1080/1540496x.2017.1284061.
Sultana, N. and Turkina, E., 2020. Foreign direct investment, technological advancement, and absorptive capacity: A network analysis. International Business Review [e-journal], 29(2), 101668. doi: 10.1016/j.ibusrev.2020.101668.
Švandová, E. and Jirásek, M., 2019. On Measuring Countries’ Innovation Performance: Organisational Level Perspective. Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis [e-journal], 67(3), pp.871-881. doi: 10.11118/actaun201967030871.
UNCTAD, 2002. World Investment Report: Transnational Corporations and Export Competitiveness. New York and Geneva: United Nations Publication.
UNCTAD, 2004. World Investment Report: The Shift Towards Services. New York and Geneva: United Nations Publication.
UNCTADSTAT, 2020. DataCenter. [online] Available through: < https://unctadstat.unctad.org/EN/ > [Accessed 02 October 2020].
Urban?íková, N. and Zgodavová, K., 2019. Sustainability, resilience and population ageing along Schengen’s eastern border. Sustainability [e-journal], 11(10), 2898. doi: 10.3390/su11102898.
Wu, J., Ma, Z. and Zhuo, S., 2017. Enhancing national innovative capacity: The impact of high-tech international trade and inward foreign direct investment. International Business Review [e-journal], 26(3), pp.502-514. doi: 10.1016/j.ibusrev.2016.11.001.
Authors
Bobenič Hintošová, A., Bruothová, M., & Vasková, I. (2020). Does Foreign Direct Investment Boost Innovation? The Case of the Visegrad and Baltic Countries. Quality Innovation Prosperity, 24(3), 106–121. https://doi.org/10.12776/qip.v24i3.1519
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