Technological competitiveness, trade and foreign direct investment

This paper seeks to assess the importance of country-level determinants in affecting the international competitiveness of a country, defined both by export shares and shares in FDI, within a common framework based on a neo-Schumpeterian approach which regards technology as playing a central role in competitiveness. The relationships are tested with data for 40 developing and industrialised countries, and country determinants are found to play a similar role in explaining both inward and outward investment and exports. However, the explanatory power of the model varies over countries, explaining almost all the variation in competitiveness of the developing countries and a much lower proportion of the variation for industrialised countries. Technological capabilities, and the level of development of the country, are found to be two of the key determinants of competitiveness. We conclude that country determinants are equally effective in explaining both trade and FDI, but that in the case of industrialised countries there are additional factors, such as firm specific competitive advantages, which are not related to country-specific characteristics, and are important determinants of competitiveness.