Do FDI and Patents Drive Sophistication of Exports? A Panel Data Approach

Abstract

This paper investigates whether inflows of FDI and innovative activities act as a channel of knowledge spillovers in improving quality of countries' output. In measuring export quality, sophistication of a country's export basket is utilized. Utilizing panel data of countries for the period 2002-2015 and applying GMM methodology, the results indicate that the level of financial development, the quality of human capital and globalization of a country have a determinant role on the relation between knowledge spillover channels and the quality of exports. Patent applications generally positively affect sophistication of exports. FDI serves as a channel for knowledge spillovers to benefit the sophistication level of exports only for developed, more educated, financially developed and globalized countries.

Investigating the effects of globalization on economic sophistication in selected African countries

“…The economic literature on the economic complexity concept is not new but it actually had its origins in the past decade (Hidalgo, 2021). Among the channels driving economic complexity, financial development (Chu, 2019), high intellectual quotient populations (Lapatinas & Litina, 2018), Internet usage (Lapatinas, 2019), taxation (Lapatinas, 2019), foreign direct investment (Ozsoy et al, 2021) have been investigated. However, instead of investigating the effects of these factors separately, some of these factors can be included under the heading of “globalization.” Keohane and Nye (2000) described globalization as a multidimensional concept—factors such as trade liberalization, trade taxes, capital flows, and the financialization process are confirmed as subfactors of economic globalization, and Internet usage is a subfactor of social globalization.…”

“…The economic literature on the economic complexity concept is not new but it actually had its origins in the past decade (Hidalgo, 2021). Among the channels driving economic complexity, financial development (Chu, 2019), high intellectual quotient populations (Lapatinas & Litina, 2018), Internet usage (Lapatinas, 2019), taxation (Lapatinas, 2019), foreign direct investment (Ozsoy et al, 2021) have been investigated. However, instead of investigating the effects of these factors separately, some of these factors can be included under the heading of "globalization."…”

The Nexus between Economic Complexity and Foreign Direct Investment in Sub-Saharan Africa

“…The study confirms the long-run bidirectional and short-run unidirectional causal relationship between economic complexity and foreign direct investment". Ozsoy et al [25] investigates "whether inflows of FDI and innovative activities act as a channel of knowledge spillovers in improving quality of countries' output. Utilizing panel data of countries for the period 2002-2015 and applying GMM methodology, the results indicate that the level of financial development, the quality of human capital and globalization of a country have a determinant role on the relation between knowledge spillover channels and the quality of exports.…”

“…The model for this study is inspired by the work of Ozsoy et al [25] who investigates using GMM methodology whether inflows of FDI and innovative activities act as a channel of knowledge spillovers in improving quality of countries' output. The model is therefore given by equation ( 1) below:…”

“…The choice of variables and regression was determined from the approach of Ozsoy et al [25]. In our approach, we initially use pooled OLS estimations, then proceed to the Eicker White test which revealed that the hypothesis of the presence of fixed effects could not be rejected and therefore the "Within" estimator is adopted for our model.…”