Foreign Ownership, R&D and Firm Innovation in ASEAN Countries: A Generalized Ordered Logit Model

The study investigates the direct effects of foreign ownership and R&D on firm innovation and the moderating effects of R&D on the foreign ownership–innovation relationship in ASEAN countries. This research focus is important as ASEAN countries have received a large amount of inward FDI as part of their export-led growth strategy, and FDI can bring both benefits and negative impacts for the host country. To the authors’ knowledge, this study contributes as the first attempt to examine this topic in ASEAN. The study employs a novel approach (i.e., generalized ordered logit model (GOLM)) to deal with the restrictive “parallel regression/proportional odds†assumption of the standard ordered logit model (OLM), which has not been adequately addressed in previous studies on the foreign ownership–innovation relationship. The findings show that foreign ownership relates negatively to the possibility of radical innovation, while R&D relates positively to the possibility of radical innovation. In addition, R&D positively moderates the effect of foreign ownership on the possibility of radical innovation. The findings verify the important role of R&D as a mechanism for absorptive capacity building in the foreign ownership–innovation relationship, which has been under-researched in prior studies on the role of foreign ownership in firm innovation. The policy implications emphasize that ASEAN governments should have more technological regulations and incentives to encourage foreign investors to bring advanced technologies and invest more in R&D.