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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. Copyright The editors of the "Scandinavian Journal of Economics" 2009 .

Suggested Citation

  • 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
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    Cited by:

    1. 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.
    2. 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.
    3. repec:tpr:asiaec:v:16:y:2017:i:2:p:55-76 is not listed on IDEAS
    4. Nakhoda, Aadil, 2012. "The effect of foreign competition on product switching activities: A firm level analysis," MPRA Paper 39167, University Library of Munich, Germany.
    5. repec:taf:jocebs:v:15:y:2017:i:1:p:41-58 is not listed on IDEAS
    6. Falk, 2015. "The Relationship Between FDI Through Backward Linkages and Technological Innovations of Local Firms: Evidence for Emerging Economies," Eastern European Economics, Taylor & Francis Journals, vol. 53(5), pages 424-438, September.
    7. 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.
    8. repec:mes:eaeuec:v:53:y:2015:i:5:p:424-438 is not listed on IDEAS

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