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Interrelationships between inward FDI and indigenous innovation in developing economies

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  • Hannarong Shamsub

Abstract

The purpose of this study is to explore possible simultaneous relationships between inward FDI and indigenous innovation in developing economies. The results of simultaneous-equations analysis reveal that there exist reciprocal relationships between the two; however, in opposing directions. While increasing innovation attracts more foreign direct investment, more inward FDI reduces innovation. Indigenous innovation is increased mainly through improvements in absorptive capacity, particularly in research and development (R%D). Government effectiveness, as the mediating factor, lessens the adverse impact of FDI on innovation while amplifying the positive effect of R%D spending on innovation. Because innovation and FDI are crucial policies that enhance economic growth, this study suggests improving overall government effectiveness as well as increasing R%D activities in order to channel FDI spillovers to trigger more indigenous innovations, which may eventually induce more foreign direct investment.

Suggested Citation

  • Hannarong Shamsub, 2014. "Interrelationships between inward FDI and indigenous innovation in developing economies," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 16(3), pages 296-309.
    • Handle: RePEc:ids:gbusec:v:16:y:2014:i:3:p:296-309
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    Cited by:

    1. L. Arturo Bernal Ponce & Ricardo Pérez Navarro & Mauricio Ramírez Grajeda, 2020. "Causality between Chinese investment in Latin America and the governance indicators," Competition and Regulation in Network Industries, , vol. 21(1), pages 6-17, March.
    2. AM.Priyangani Adikari & Haiyun Liu & MMSA. Marasinghe, 2021. "Inward Foreign Direct Investment-Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach," Sustainability, MDPI, vol. 13(13), pages 1-16, June.
    3. Almodóvar, Paloma & Nguyen, Quyen T.K. & Verbeke, Alain, 2021. "An integrative approach to international inbound sources of firm-level innovation," Journal of World Business, Elsevier, vol. 56(3).

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