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Foreign multinationals and domestic innovation: intra-industry effects and firm heterogeneity

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  • Crescenzi, Riccardo
  • Gagliardi, Luisa
  • Iammarino, Simona

Abstract

This paper looks at foreign Multinational Enterprises (MNEs) investing in the UK and at their impact on the innovation performance of domestic firms active in their same sector. By employing data on Foreign Direct Investments matched with firm-level information the paper develops a direct measure of capital inflows at a three-digit industry level. In order to capture innovation in both manufacturing and services the paper relies on a broader proxy for firm innovativeness based on the Community Innovation Survey (CIS). The results suggest that domestic firms active in sectors with greater investments by MNEs show a stronger innovative performance. However, the heterogeneity across domestic firms in terms of internationalization of both their market engagement and ownership structure is the main driver of this effect.

Suggested Citation

  • Crescenzi, Riccardo & Gagliardi, Luisa & Iammarino, Simona, 2015. "Foreign multinationals and domestic innovation: intra-industry effects and firm heterogeneity," LSE Research Online Documents on Economics 62028, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:62028
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    Keywords

    multinational enterprises; innovation technological change; intra-industry knowledge diffusion; community innovation survey; United Kingdom;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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