Do Foreign Investment and Trade Spur Innovation?

51 Pages Posted: 11 Aug 2015 Last revised: 2 Dec 2019

See all articles by Yuriy Gorodnichenko

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Gerald R. Ford School of Public Policy

Multiple version iconThere are 3 versions of this paper

Date Written: August 2015

Abstract

Using large firm-level and industry-level data sets from eighteen countries, we find that foreign direct investment (FDI) and trade have positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. However, while we detect the spillover effects with micro data at the firm-level, when we use linkage variables computed from input-output tables at the industry level we find much weaker, and usually insignificant, effects. These patterns are important for policy, suggesting that spillovers are localized to firms engaged directly with multinationals and in trade, rather than affecting all domestic firms in industries with FDI presence.

Keywords: emerging markets, FDI, foreign competition, horizontal and vertical linkages, innovation, spillovers

JEL Classification: F23, M16, O16, P23

Suggested Citation

Gorodnichenko, Yuriy and Svejnar, Jan and Terrell, Katherine, Do Foreign Investment and Trade Spur Innovation? (August 2015). CEPR Discussion Paper No. DP10757, Available at SSRN: https://ssrn.com/abstract=2642222

Yuriy Gorodnichenko (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

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Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA ( email )

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University of Ljubljana ( email )

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Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

Gerald R. Ford School of Public Policy ( email )

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