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Innovation interactions: Multinational spillovers and local absorptive capacity

Author

Listed:
  • Ronald B. Davies
  • Mahdi Ghodsi

    (The Vienna Institute for International Economic Studies, wiiw)

  • Francesca Guadagno

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

The hope that multinational firms will improve local employment and productivity is a driving force behind policy efforts to attract investment. Such spillovers are often motivated by technological spillovers from foreign to domestic firms. We address this possibility by using the patenting activity of foreign multinationals in Europe as a measure of affiliate activity alongside more traditional proxies. We find that local firms’ employment and labour productivity is higher when FDI activity increases, particularly when those multinationals are upstream of locals. Furthermore, this effect is particularly significant among domestic patenting firms. Thus, it seems that the benefits of inbound investment are greatest for local innovators who are exposed to inbound innovating foreigners.

Suggested Citation

  • Ronald B. Davies & Mahdi Ghodsi & Francesca Guadagno, 2025. "Innovation interactions: Multinational spillovers and local absorptive capacity," wiiw Working Papers 265, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:265
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    File URL: https://wiiw.ac.at/innovation-interactions-multinational-spillovers-and-local-absorptive-capacity-dlp-7344.pdf
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    More about this item

    Keywords

    spillovers; Foreign Direct Investment; Patents;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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