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Inward foreign direct investment and local firm innovation: The moderating role of technological capabilities

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  • Byungchae Jin

    (Korea Advanced Institute of Science and Technology)

  • Francisco García

    (Facultad de Economía y Empresa, Universidad de Oviedo)

  • Robert Salomon

    (NYU Stern School of Business)

Abstract

Extant research on inward foreign direct investment (FDI) suggests that foreign entrants bring superior technology with them to host countries, thereby providing local firms the opportunity to learn and upgrade their technologies. However, foreign entrants also increase competition in the local market, potentially harming domestic firms. In this study, we extend existing work on inward FDI by investigating the moderating role of technological capabilities on the relationship between inward FDI and local firm innovation. Building upon firm capabilities arguments, we expect that domestic firms with existing technological capabilities are better positioned to stave off foreign competition and better able to learn from foreign entrants. However, we find, somewhat surprisingly, that local technological leaders apply for fewer patents and introduce fewer new products than do local technological laggards subsequent to foreign entry. These results imply that technological capabilities do not buffer domestic firms from the deleterious competition consequences associated with inward FDI.

Suggested Citation

  • Byungchae Jin & Francisco García & Robert Salomon, 2019. "Inward foreign direct investment and local firm innovation: The moderating role of technological capabilities," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(5), pages 847-855, July.
    • Handle: RePEc:pal:jintbs:v:50:y:2019:i:5:d:10.1057_s41267-018-0177-1
    DOI: 10.1057/s41267-018-0177-1
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