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Globalization and Innovation in Emerging Markets

  • Yuriy Gorodnichenko

    (University of Michigan)

  • Jan Svejnar

    (University of Michigan)

  • Katherine Terrell

    (University of Michigan)

Globalization brings opportunities and pressures for domestic firms in emerging markets to innovate and improve their competitive position. Using data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms' efforts to raise their capability (innovate) by upgrading their technology or the quality of their product/service, taking into account firm heterogeneity. We find competition has a negative effect on innovation, especially for firms further from the frontier, and that the supply chain of multinational enterprises and international trade are important channels for domestic firm innovation. We do not find support for the inverted U effect of competition on innovation. There is weak evidence that firms in a more pro-business environment invest more in innovation and are more likely to display the inverted U relationship between competition and innovation.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 583.

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Length: 43 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:mie:wpaper:583
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