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FOREIGN DIRECT INVESTMENT AND TECHNOLOGICAL INNOVATION IN DEVELOPING COUNTRIES

Kamilia Loukil ()
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Kamilia Loukil: Department of Economics, Faculty of Econonomics and Management of Sfax, Tunisia

Oradea Journal of Business and Economics, 2016, vol. 1, issue 2, pages 31-40

Abstract: A large number of countries have enacted laws aimed at making it easier for firms to invest in their country, while many countries offer various monetary incentives and tax incentives to encourage inward Foreign Direct Investment (FDI). The desire to attract FDI is due not only to the fact that FDI brings in new investment boosting national income and employment, but also due to the expectation that inward FDI would also provide additional spillover benefits to the local economy that can result in higher productivity growth and increased export growth. This study aims to examine the impact of foreign direct investment on innovation in developing countries. The estimation of a panel threshold model on a sample of 54 developing countries for the 1980-2009 period shows the presence of non linear effects in the relationship between FDI and innovation. We find a threshold value of technological development below which FDI has a negative impact on innovation and above which FDI has a significant positive impact on innovation. We conclude that it is not enough for economic policy to attract foreign investments, it is still necessary to support domestic firms to build an absorptive capacity allowing them to enjoy the benefits of multinational firms.

Keywords: foreign direct investment; innovation; absorptive capacity; non linear relationship (search for similar items in EconPapers)
JEL-codes: O3 (search for similar items in EconPapers)
Date: 2016
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