Foreign direct investment on high and medium technology intensity exports: Evidence for countries in Latin America and the Caribbean (2002–2021)

This article analyzed the impact of Foreign Direct Investment (FDI) on the competitiveness of high- and medium-technology exports in Latin America and the Caribbean (2002–2021). The econometric results indicated a negative impact of FDI on the competitiveness of exports in countries with lower per capita income, using the Autoregressive Distributed Lag (ARDL) model, estimated by Pooled Mean Group (PMG). However, this impact can become positive after a specific threshold of per capita income; that is, the empirical results revealed a non-linear relationship between the effects of FDI on export competitiveness and the per capita income level of the countries in the sample. The empirical evidence presented in the article showed that FDI harms the competitiveness of exports in countries with low per capita income but becomes beneficial after a critical value of US$ 5,172.44. This dynamic is due to the greater absorptive capacity of technologies entering through this channel (FDI) in countries with higher per capita income levels, as they have more consolidated, mature, and competitive companies. In contrast, low-income countries may have their companies displaced from the market, decreasing their competitiveness. The robustness of the econometric evidence is confirmed by the Error Correction Term (ECT) of -0.74, indicating a rapid adjustment (74% per year) to long-term equilibrium. The article concludes that institutional development and domestic income are preconditions for foreign capital to be able to drive regional technological sophistication.