FDI, Trade, and Product Innovation: Theory and Evidence

Abstract

This article investigates the relationship between foreign direct investment (FDI, including outward FDI and inward FDI), imports and exports, and product innovation. Our theoretical model predicts that inward FDI, outward FDI, imports, and exports have positive influences on firm innovative activities, which would evaluate the effects of the relative magnitude of different sources on innovation. The empirical results based on the 2003 First Taiwan Technological Innovation Survey confirm three of the proposed hypotheses for the entire sample. However, when focusing on the manufacturing sector, outward FDI, inward FDI, imports, and exports all exhibit strongly positive effects on the determination of conducting product innovation (i.e., the four hypotheses are verified). A consistent trend is that outward FDI has the largest effect on innovation, regardless of the measurement of product innovation and the division of the entire sample, which may imply that in Taiwan a positive effect of ''deindustrialization'' is to innovate more.

Dissecting the impact of innovation on exporting in Turkey

“…Salomon and Shaver (2005) for Spain, Bratti and Felice (2012) for Italy, Hahn and Park (2011) for Korea and Lo Turco and Maggioni (2014) for Turkey, all find evidence of a positive effect of exporting on new product introduction at the firm level. Lin and Lin (2010) for Taiwan enlarge the scope to the analysis of the impact of imports and inward and outward foreign direct investments (FDI) and find a positive effect of both trade and FDI on innovation. On the contrary, Damijan, Kostevc, and Polanec (2010) for the Slovenian case find no significant effect on product innovation from export entry, while it spurs medium and large firms to introduce process innovations.…”

The Role of Foreign Direct Investment and State Capture in Shaping Innovation Outcome in Russia

“…While some studies find positive spillover effects of FDI on innovation within local firms (Bertschek 1995;Blomström & Sjöholm 1999;Damijan et al 2003;Yudaeva et al 2003;Javorcik & Spatareanu 2005;Lin & Lin 2010;Vahter 2011;Ito et al 2012;Qu et al 2013); other studies find negative spillover effects (Aitken & Harrison 1999;Konings 2001;Damijan et al 2003;Javorcik & Spatareanu 2005;Fan & Hu 2007;Chen 2007;Zhang 2008).…”

Utilizing FDI to Stay Ahead: The Case of Singapore

“…Kemeny's results further show that richer countries also benefit from FDI, just not as much. Lin and Lin (2010) show that outward flows of FDI have a larger positive effect on product innovation than inward flows, imports or exports, but they all have some positive effect. Hence there is evidence that utilizing FDI to upgrade technology and spur innovation can work.…”