Globalization And Innovation In Emerging Markets

Abstract

Globalization brings opportunities and pressures for domestic firms in emerging markets to innovate and improve their competitive position. Using data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms' efforts to raise their capability (innovate) by upgrading their technology or the quality of their product/service, taking into account firm heterogeneity. We find competition has a negative effect on innovation, especially for firms further from the frontier, and that the supply chain of multinational enterprises and international trade are important channels for domestic firm innovation. We do not find support for the inverted U effect of competition on innovation. There is weak evidence that firms in a more pro-business environment invest more in innovation and are more likely to display the inverted U relationship between competition and innovation.

Do Imports Spur Incremental Innovation in the South?

“…The estimate is close to those in Gorodnichenko, Svejnar and Terrell (2010). A number of empirical strategies rule out alternative explanations as sufficient drivers of our result.…”

“…Our paper echoes Gorodnichenko et al (2010). They document that firms in European developing countries also respond to imports by engaging in more small-step inno- Teshima (2009) measures import competition faced by Mexican firms based on firmspecific import tariff reduction.…”

“…Table 1 indicates that, on average, firms face 6.43% of import penetration in their major markets. Gorodnichenko et al (2010) use firms' responses to the perceived severity of foreign competition on a scale of one to four. Although our measure is different, our estimate is shown later to be close to their estimates.…”

Globalization and the Determinants of Innovation in BRICS versus OECD Economies: A Macroeconomic Study

“…Further, they report that technology transfer and networking are the more important factors in increasing innovation activities. After analyzing firm-level data from 27 emerging economies Gordonichenko, Svejnar, and Terrell (2010) arrive at a robust positive relationship between innovation and foreign competition.…”

When Does FDI Have Positive Spillovers? Evidence from 17 Transition Market Economies

“…However, Gorodnichenko, Svejnar and Terrell (2010) find that the share of university educated is an important factor in explaining the probability that a firm innovates. Note: The table reports the estimated spillover effects on revenue efficiency using the specification in equation (8) in the paper.…”