FDI and the Innovation Ecosystem in Bangladesh: Evaluating the Spillover Effects of Foreign R&D on SMEs’ Innovation Capacity

This study examines the transformative role of Foreign Direct Investment (FDI) in enhancing the innovation capacity of small and medium enterprises (SMEs) in Bangladesh through knowledge spillovers from foreign research and development (R&D) activities. By leveraging a mixed-methods approach, the research explores mechanisms such as technology adoption, skill enhancement, and collaborative projects that facilitate knowledge transfer to local SMEs. Empirical findings underscore that high-technology sectors benefit the most from FDI-driven innovation. At the same time, resource limitations, regulatory barriers, and insufficient absorptive capacity hinder SMEs from fully leveraging these opportunities. The study also identifies critical factors, including government policy support and infrastructure development, that influence the effectiveness of FDI spillovers. Recommendations include targeted policy interventions, enhanced training programs, and fostering foreign-local firm collaborations to optimise FDI’s impact on the innovation ecosystem. These insights provide a framework for sustainable and innovation-led economic growth in Bangladesh and similar emerging markets.